STIMULUS:

3,700 recipients owe millions in taxes -- GAO report

At least 3,700 recipients of federal stimulus funds owe more than $750 million in federal taxes, according to a new study from the Government Accountability Office.

GAO released the report today, in response to a request from several Senate committees. Of the $757 million owed, $417 million is in corporate income taxes and $207 million is in payroll taxes. The remaining $133 million included unpaid excise and unemployment taxes.

But those numbers are not all-inclusive, wrote Gregory Kutz , director of GAO's Forensic Audits and Investigative Service . The IRS database does not include recipients who have not filed tax returns, and GAO included only stimulus recipients who have complied with the reporting requirements in the American Recovery and Reinvestment Act.

The report is the first to look at the tax records of stimulus recipients. The Recovery Act appropriated $275 billion for federal contracts, grants and loans. About $191 billion of that has been paid out, and $24 billion went to recipients who owe taxes, according to the GAO report.

But the act does not require contractors to be paid up, and federal agencies are prohibited from checking their records. GAO alone has the authority to match tax records with recipient reporting.

The Recovery Accountability and Transparency Board, which was created to prevent Recovery Act fraud, is lobbying for the authority to do the same. In a written response to the GAO report, RAT accountability director John Higgins lamented the fact that the board "does not have access to IRS tax information -- even where such information relates to recipients of Recovery Act funds."

GAO's report highlights a larger problem, he wrote, that could be mitigated through further analysis of tax records.

"The Recovery Board could compare recipient reports to the unpaid tax data and determine whether recipients of Recovery funds owed money to the federal government," Higgins wrote. "We could also utilize the unpaid tax data and a host of other risk-relevant data to create a risk-based model upon which government agencies could rely in making their own expenditure determinations."

Kutz will discuss the report at a 2:30 p.m. hearing today of the Senate Homeland Security and Governmental Affairs subcommittee on investigations. Senators plan to explore the possibility of denying federal contracts to subcontractors with serious tax delinquencies.

In a statement, subcommittee Chairman Carl Levin (D-Mich.) said the report confirms what Congress has known for years: A "small percentage" of federal contractors shirk their tax responsibilities.

"We've strengthened the levy program to recover more funds from them, and the executive branch has made it clear nonpayment of tax can be grounds for denying a specific contract or debarring a contractor from bidding on any contract," Levin said. "Now the executive branch should get on with it and actually debar the worst of the tax cheats from the contractor workforce."

The GAO report gives 15 examples of stimulus recipients against whom the IRS has taken collection or enforcement activities. One construction company that owes more than $700,000 in federal taxes has received more than $1 million in Recovery Act awards. During the time that the company was not paying its federal tax deposit, a company executive spent hundreds of thousands of dollars at casinos.

The report does not give specifics on the contractors or the projects for which they received stimulus funds. But of those who owe taxes, many owed from several tax years. About 35 percent of the $757 million owed was from tax periods prior to 2003, according to the report.

Click here to read the GAO report.

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