Paul L. Caron

Wednesday, June 24, 2015

TIGTA: IRS Violated Federal Law By Awarding Millions In Contracts To Businesses With Unpaid Federal Taxes

TIGTAThe Treasury Inspector General for Tax Administration today released Existing Procurement Practices Allowed Corporations With Federal Tax Debt to Obtain Contract Awards (2015-10-011):

Beginning with Fiscal Year (FY) 2012, Federal law has prohibited the IRS from using appropriated funds to enter into a contract with a corporation that has certain Federal tax debt and/or felony convictions.  ...

The IRS did not have effective controls in place to prevent the award of contracts to corporations with certain Federal tax debt and/or felony convictions.  TIGTA identified 17 corporations that were awarded a total of 57 contracts valued at about $18.8 million (including nearly $18 million for contract modifications)during FYs 2012 and 2013, while they had Federal tax debt.  The IRS has not established a definition of Federal tax debt for this purpose and does not perform proactive tax checks to comply with this Federal law.

In addition, TIGTA found that the IRS did not follow the Department of the Treasury requirement to insert specific language in solicitations requiring corporations to assert whether or not they have certain Federal tax debt and/or felony convictions. ...

[T]he IRS asserts that it was appropriate to award nearly $18 million of contract modifications to contractors with Federal tax debt. TIGTA disagrees with this assertion.  The contract modifications were related to contracts awarded before the new requirements of the Federal law were effective.  However, all 32 modifications were awarded after the law was enacted and the nearly $18 million to fund the new work related to these modifications was obligated after the new law became effective.  Therefore, TIGTA believes that the IRS was prohibited from using appropriated funds to make these awards per the Treasury Department’s implementing guidance.

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What is the implication? Does this mean that the IRS can refuse to pay the companies and they have no recourse? Does it mean they can use the Commissioner if the IRS refuses to pay, since the Commissioner is to blame for having pretended to have the authority to make the contract? Actually, under agency law principles I think they can collect from the IRS based on apparent authority, but the IRS can sue the Commissioner personally for having made a contract contrary to his authority. Obama won't do that, but I hope the next Administration will.

Posted by: Eric Rasmusen | Jun 25, 2015 7:58:04 PM