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Report says stimulus funds benefited tax delinquents

By Jim Abrams
Associated Press / May 24, 2011

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WASHINGTON — Thousands of companies that cashed in on President Obama’s economic stimulus package owed the government millions in unpaid taxes, congressional investigators have found.

The Government Accountability Office, in a report being released today, said at least 3,700 government contractors and nonprofit organizations that received more than $24 billion owed $757 million in back taxes as of Sept. 30, 2009.

The report said the tax delinquents accounted for nearly 6 percent of the 63,000 contractors and grantees examined and cautioned that the real number might be higher.

An engineering firm that received a $100,000 stimulus act contract owed $6 million in taxes. The IRS called it “an extreme case of noncompliance.’’ A social services nonprofit that received more than $1 million in stimulus funds owed taxes of $2 million.

The GAO referred those two cases and 13 others to the IRS for further investigation.

Today, a Senate Homeland Security and Governmental Affairs subcommittee will hold a hearing on the report.

Federal law does not prohibit tax delinquents from getting government contracts or grants, though there are provisions that enable the government to withhold payments in some cases. Some recipients escaped federal review because the money was disbursed at state or local levels.

Senator Carl Levin, Democrat of Michigan, said it has been known for years that a few federal contractors and grantees don’t pay their taxes. He said a program to recover funds from tax delinquents has been strengthened, and “the executive branch has made it clear’’ nonpayment of tax can be grounds for denying a contract or barring a contractor from bidding on any contract. He added the executive branch should “get on with it’’ and bar the worst tax cheats.