GAO: Billions in stimulus contracts went to tax delinquents

A Senate panel on Tuesday will examine how more than $24 billion in stimulus funds went to contractors or organizations that owe the federal government millions in back taxes. 

A new report issued by the Government Accountability Office (GAO) found 3,700 contractors and grantees that received stimulus funds owed a combined $757 million in back taxes. 

“That such a huge amount of the stimulus money went to known tax cheats should be a wakeup call for Congress,” said Sen. Tom Coburn (R-Okla.), one of the five lawmakers who requested the report. 

Coburn and Sen. Carl Levin (D-Mich.) are scheduled to hold a Senate Permanent Subcommittee on Investigations hearing on the matter Tuesday afternoon. Coburn and Levin released some of the report’s findings in advance of the hearing.

Levin noted that the executive branch had already stressed that contractors could be denied certain awards if they had not paid taxes. 

“Now the executive branch should get on with it and actually debar the worst of the tax cheats from the contractor workforce,” he said.

The stimulus, which cost an estimated $787 billion when it was approved by Congress, is credited by the White House and most Democrats with preventing a deeper recession. Republicans, however, railed against the measure, noting that unemployment and the nation's debt rose after it was approved. 

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Sens. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee; Orrin Hatch (R-Utah), the panel's ranking member; and Chuck Grassley (R-Utah), the ranking member on the Senate Judiciary Committee, also called for the report from the GAO, Congress’s investigative arm. 

GAO signaled that the problem of stimulus funds going to those with outstanding tax bills was probably broader than it had identified. 

In all, investigators looked at 63,000 taxpayers and organizations, finding that close to 6 percent of them owed back taxes. Roughly a third of the tax debts were from before 2003, well before the stimulus package was enacted. 

The report also discusses, among other cases, a nonprofit owing more than $2 million in payroll taxes that was awarded more than $1 million in stimulus funds. The nonprofits’s chief executive was also known to have made numerous trips to a casino. 

In another case, a security company cited for labor violations and dubbed uncooperative by the IRS received a contract worth more than $100,000, despite owing more than $9 million in taxes.