Audit: IRS blocked government program from collecting delinquent taxes from contractors

“All federal contractors, and particularly those that do business with the IRS, must meet their obligations to pay federal taxes,” Russell George, the tax administration inspector general, said in a statement. “Although the IRS has the responsibility to investigate the merit of a taxpayer’s claim before initiating enforced collection activity, it should improve its practices to expedite the timely resolution of federal contractor accounts that are in dispute.”

As the inspector general noted, the audit comes after President Obama and lawmakers have called for cracking down on contractors with outstanding tax bills. 

The 11 contractors who owed $4.3 million in taxes all had contracts with the IRS and could have been placed in the Federal Payment Levy Program, which collects from Social Security, contract awards, salaries and other areas to settle a delinquent tax bill.

According to the audit, the 11 contractors received about $356 million from the IRS and another roughly $3.7 billion from other federal agencies. The inspector general estimated that some $3.8 million could have been gathered from eight of those contractors, if they had been included in the federal levy program. 

The inspector general suggested, among other recommendations, that the IRS look for ways to expedite how it examines these sorts of cases to make sure they are handled in a timely manner. 

The IRS agreed with the audit’s recommendations. But it also said the inspector general’s finding that $3.8 million could have been collected was overstated, asserting that the cases involving the vast majority of that revenue were still pending. 

“In these instances, taxpayers have submitted evidence that raise legitimate concerns about the accuracy of an underlying tax assessment,” the agency’s Christopher Wagner wrote in response. “The IRS has a responsibility to investigate the merit of a taxpayer’s claim before initiating enforced collection activity.”