oversight

Federal Contracting: Opportunities to Improve Compliance with Regulations and Enhance Tax Collections

Published by the Government Accountability Office on 2019-05-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office
             Report to Congressional Requesters




             FEDERAL
April 2019




             CONTRACTING

             Opportunities to
             Improve Compliance
             with Regulations and
             Enhance Tax
             Collections




GAO-19-243
                                            April 2019

                                            FEDERAL CONTRACTING
                                            Opportunities to Improve Compliance with
                                            Regulations and Enhance Tax Collections
Highlights of GAO-19-243, a report to
congressional requesters




Why GAO Did This Study                      What GAO Found
The federal government obligated            The five selected agencies GAO reviewed have control activities—such as
approximately $507 billion on contracts     policies and procedures—to help ensure they consider qualifying federal tax
in fiscal year 2017. Businesses,            debts as defined by Federal Acquisition Regulation (FAR) § 52.209-11 and §
including federal contractors, pay          52.209-5 before awarding contracts. However, these controls were potentially
billions of dollars in taxes each year.     ineffective in ensuring compliance with relevant laws and regulations. According
Some businesses, however, do not            to GAO’s analysis, in 2015 and 2016 the Departments of Energy, Health and
pay owed taxes, contributing to what is     Human Services, and Veterans Affairs, and the Army and Navy, awarded 1,849
known as the tax gap. Federal               contracts to contractors that reported qualifying federal tax debts, such as
contractors owe some of the taxes that
                                            delinquent debts over $3,500 (see table). When a contractor reports qualifying
contribute to the tax gap, and, since
                                            tax debts under these regulations, the contracting officer must take several
2015, federal law prohibits agencies,
under certain circumstances, from
                                            actions, including notifying the agency suspension and debarment official (SDO).
using appropriated funds to contract        However, SDOs at all five agencies told GAO they did not receive any
with those who have qualifying tax          notifications of contractors reporting tax debt in this period. As a result, these
debt. The IRS also has authority to         contracts may have been awarded without potential required actions, indicating
levy certain payments of contractors        potential violations of federal regulations and, in some cases, appropriations law.
with qualifying federal tax debt.
                                            Number of Contract Awards to Contractors Reporting Qualifying Tax Debt under FAR §
GAO was asked to review issues              52.209-11 and § 52.209-5 in Calendar Years 2015 and 2016, by Selected Agency
related to federal contractors and tax                                                                                     Contract awards        Contract awards
debt. Among other things, GAO                Agency                                                                       under § 52.209-11       under § 52.209-5
examined whether, in calendar years          Department of Defense, Army                                                                 73                    324
                                             Department of Defense, Navy                                                                 54                    266
2015 and 2016, (1) selected federal          Department of Energy                                                                         0                     22
agencies had control activities that         Department of Health and Human Services                                                      7                     78
ensured contractors’ reported federal        Department of Veterans Affairs                                                               9                  1,016
tax debts were considered before             Total                                                                                      143                  1,706
contract award and (2) the IRS levied       Source: GAO analysis of General Services Administration data. | GAO-19-243

selected federal contractors’ payments.     GAO’s nongeneralizable review of seven contracts illustrate two cases where
GAO analyzed contract and IRS data
                                            contractors were collectively awarded more than $510,000 in contract obligations
from 2015 and 2016 (the most-recent
                                            while having more than $250,000 in tax debt, including tax penalties for willful
data available), reviewed five agencies
that represent 51 percent of contract       noncompliance with tax laws. Officials from the selected agencies were unable to
obligations, and reviewed seven             explain why their control activities were potentially ineffective without reviewing
awards to contractors reporting tax         each contract to determine whether FAR requirements were applicable and
debt.                                       whether control activities were applied. Understanding why existing control
                                            activities did not operate effectively will help these agencies enhance controls to
What GAO Recommends                         avoid future misuses of appropriated funds. GAO plans to provide information on
GAO is making 12 recommendations,
                                            the instances of potential noncompliance GAO identified to the selected
including that selected agencies            agencies.
enhance controls for considering            Of the over 2,700 executive-branch contractors GAO found to have likely
contactors’ qualifying federal tax debt     qualifying federal tax debt as of December 2016, the Internal Revenue Service
before awarding contracts and that the      (IRS) had identified over 2,000 for levy through its automated Federal Payment
IRS evaluate options to obtain              Levy Program (FPLP). However, the FPLP cannot levy all contractors because
comprehensive contract-payment              not all payments are processed by the system the FPLP uses. The data the IRS
information. All the agencies generally
                                            receives from agencies does not allow it to readily identify payments made using
agreed with GAO’s recommendations.
                                            other systems—information the IRS needs for agency outreach about inclusion
View GAO-19-243. For more information,      in the FPLP and to more quickly initiate a manual levy. With this information, the
contact Rebecca Shea at (202) 512-6722 or   IRS may be able to improve its levy capacity and enhance tax collections.
shear@gao.gov.


                                                                                                                     United States Government Accountability Office
Contents


Letter                                                                                    1
                Background                                                               8
                Selected Agencies Have Controls to Identify Contractors’
                  Reported Tax Debt, but the Controls Were Potentially
                  Ineffective at Ensuring Compliance with Regulations                   13
                Federal Contracts Were Awarded to Thousands of Contractors
                  with Potentially Qualifying Federal Tax Debt                          26
                The IRS Identified Most Federal Contractors with Unpaid Taxes
                  for Levy, but the FPLP Cannot Comprehensively Identify All
                  Federal Contractors for Levy                                          32
                Conclusions                                                             36
                Recommendations for Executive Action                                    37
                Agency Comments                                                         40

Appendix I      Objectives, Scope, and Methodology                                      42



Appendix II     Comments from the Department of Defense                                 48



Appendix III    Comments from the Department of Health and Human Services               51



Appendix IV     Comments from the Department of Veterans Affairs                        53



Appendix V      Comments from the Department of Energy                                  55



Appendix VI     Comments from the General Services Administration                       57



Appendix VII    Comments from the Internal Revenue Service                              58



Appendix VIII   GAO Contact and Staff Acknowledgments                                   61




                Page i                                        GAO-19-243 Federal Contracting
Tables
          Table 1: Number of Contracts Awarded by Selected Agencies to
                  Contractors That Reported Qualifying Tax Debt under §
                  52.209-11 from February 26, 2016, through December 31,
                  2016                                                             19
          Table 2: Number of Contracts Awarded by Selected Agencies to
                  Contractors That Reported Qualifying Tax Debt under §
                  52.209-5 in Calendar Years 2015 and 2016                         21

Figures
          Figure 1: Overview of Pre–Contract Award Requirements Related
                   to Qualifying Federal Tax Debt                                  12
          Figure 2: Excerpt from Agency Contract Award Checklist                   16
          Figure 3: Process for Accessing, Reviewing, and Identifying
                   Prospective Contractors’ Qualifying Tax Debt Reported in
                   the System for Award Management                                 24
          Figure 4: Breakdown of Contractors with Unpaid Taxes at the
                   Time of Award by Debt Status—Likely Qualifying or Not
                   Qualifying Federal Tax Debt—as of December 15, 2016             27
          Figure 5: IRS Process for Collecting Federal Contractors’
                   Delinquent Taxes through the Department of the
                   Treasury’s Fiscal Service FPLP and Other Manual Levy
                   Methods                                                         34




          Page ii                                        GAO-19-243 Federal Contracting
Abbreviations

CFO                        Chief Financial Officer
DOE                        Department of Energy
FAR                        Federal Acquisition Regulation
Fiscal Service             Bureau of the Fiscal Service
FPDS-NG                    Federal Procurement Data System–Next
                            Generation
FPLP                       Federal Payment Levy Program
GSA                        General Services Administration
HHS                        Department of Health and Human Services
IRS                        Internal Revenue Service
SAM                        System for Award Management
SDO                        suspension and debarment official
TFRP                       Trust Fund Recovery Penalty
Treasury                   Department of the Treasury
VA                         Department of Veterans Affairs


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Page iii                                                   GAO-19-243 Federal Contracting
                       Letter




441 G St. N.W.
Washington, DC 20548




                       April 15, 2019

                       The Honorable Elijah E. Cummings
                       Chairman
                       The Honorable Jim Jordan
                       Ranking Member
                       Committee on Oversight and Reform
                       House of Representatives

                       The Honorable Richard E. Neal
                       Chairman
                       The Honorable Kevin Brady
                       Ranking Member
                       Committee on Ways and Means
                       House of Representatives

                       The federal government obligated approximately $507 billion on contracts
                       and awarded about 537,000 new contracts to over 100,000 contractors in
                       fiscal year 2017. 1 Businesses, including those that receive federal
                       contracts, are responsible for paying their share of taxes including
                       employment and income tax, which results in billions of dollars in tax
                       revenue each year. Some taxes are not paid voluntarily and on time,
                       however, leading to what is known as a “tax gap.” 2 A portion of the tax
                       gap is owed by individuals and businesses receiving payments from the
                       federal government. In its most-recent estimate, the Internal Revenue
                       Service (IRS) stated that the average annual gross tax gap was $458
                       billion for tax years 2008–2010. The IRS estimated that it would
                       eventually collect $52 billion of this amount, leaving a net tax gap of $406
                       billion in unpaid taxes for each of those 3 years. In an effort to help close
                       the tax gap, Congress gave the IRS the authority to collect assets or
                       payments, including federal contract payments, to collect unpaid taxes,
                       and these collections are referred to as a levy. 3 IRS enforcement of tax
                       1
                        These contract obligations include task orders reported by federal agencies to the
                       Federal Procurement Data System–Next Generation (FPDS-NG). The FPDS-NG is the
                       central repository for capturing information on federal procurement actions. Dollar
                       amounts reported by federal agencies to FPDS-NG represent the net amount of funds
                       obligated and deobligated as a result of procurement actions.
                       2
                        The tax gap is the difference between the taxes that should have been paid voluntarily
                       and on time and what was actually paid.
                       3
                        I.R.C. § 6331(h). A levy is a legal seizure of property (including payments) to satisfy a tax
                       debt.




                       Page 1                                                       GAO-19-243 Federal Contracting
laws is vital to promote compliance by giving taxpayers confidence that
others are paying their fair share. Because of the challenges that the IRS
faces in its enforcement of tax laws, we continue to include it as a high-
risk area. 4

Our prior work, as well as that of the Treasury Inspector General for Tax
Administration, identified thousands of federal contractors that abused the
federal tax system, causing significant loss of tax revenue. 5 For example,
in 2007 we found that thousands of federal contractors had substantial
amounts of unpaid federal taxes. Specifically, about 63,000 federal
contractors owed approximately $7 billion in unpaid taxes. At the time of
that report, there was no requirement that contracting officers consider
most instances of unpaid federal taxes prior to the award. 6

Since as early as 2008, under the Federal Acquisition Regulation (FAR), 7
certain prospective contractors have been required to report delinquent
federal tax. Furthermore, since fiscal year 2015, appropriations statutes
have included a government-wide provision prohibiting federal agencies,
under certain circumstances, from using appropriated funds to enter into
contracts with corporations that have certain federal tax debts.
Specifically, fiscal years 2015 and 2016 appropriations statutes contain a
4
 GAO, High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts
Needed on Others, GAO-17-317 (Washington, D.C.: Feb. 15, 2017).
5
 GAO, Tax Compliance: Thousands of Federal Contractors Abuse the Federal Tax
System, GAO-07-742T (Washington, D.C.: Apr. 19, 2007); Recovery Act: Thousands of
Recovery Act Contract and Grant Recipients Owe Hundreds of Millions in Federal Taxes,
GAO-11-485 (Washington, D.C.: Apr. 28, 2011); Treasury Inspector General for Tax
Administration, Existing Procurement Practices Allowed Corporations With Federal Tax
Debt To Obtain Contract Awards, 2015-10-011 (Mar. 26, 2015); Significant Improvements
Are Needed in the Contractor Tax Check Process, 2016-10-049 (July 20, 2016).
6
GAO-07-742T.
7
 The FAR is the primary regulation used by all federal executive agencies to acquire
supplies and services with appropriated funds. The Office of Federal Procurement Policy
was established by Congress in 1974 to provide overall direction for government-wide
procurement policies, regulations, and procedures, and to promote economy, efficiency,
and effectiveness in acquisition processes. The Interagency Suspension and Debarment
Committee was created by, and is responsible for monitoring the implementation of,
Executive Order 12549, 51 Fed. Reg. 6370 (Feb. 18, 1986), which requires executive
departments’ and agencies’ participation in a system for debarment and suspension. The
committee acts in a leadership role to help agencies build and maintain the expertise
necessary to protect the government’s business interests from harm. The Civilian Agency
Acquisition Council assists the Administrator of the General Services Administration
(GSA) in developing and maintaining the FAR system by developing or reviewing all
proposed changes to the FAR.




Page 2                                                   GAO-19-243 Federal Contracting
government-wide provision stating that funds may not be used to enter
into a contract with any corporation that has any unpaid federal tax
liability (1) that has been assessed, (2) for which all judicial and
administrative remedies have been exhausted or have lapsed, and (3)
that is not being paid in a timely manner pursuant to an agreement with
the authority responsible for collecting the tax liability, when the awarding
agency is aware of the unpaid tax liability, unless a federal agency has
considered suspension or debarment of the corporation and has made a
determination that further action is not necessary to protect the interests
of the government. 8 To implement the appropriations requirement and
avoid misuse of appropriated funds, in 2016 the FAR was revised to
require contracting officers to include a new tax debt–related provision in
all solicitations regardless of contract value. Further, the revised
regulation required that prospective contractors respond to this tax
provision in the System for Award Management (SAM) 9 as part of their
annual representations and certifications.

You asked us to review issues related to federal contractors and tax debt.
This report first examines the extent to which, in calendar years 2015 and
2016, 10 (1) selected federal agencies had control activities that ensured
contractors’ reported federal tax debts were considered before contract
award. The remainder of the report assesses the same period; however,
it focuses on all executive-branch agencies and examines the extent to
which (2) federal contracts were awarded to contractors with federal tax
debt, including the characteristics of those contracts and contractors, and
(3) the IRS identified selected federal contractors’ payments for levy.

To identify the extent to which selected federal agencies had control
activities that ensured contractors’ reported federal tax debts were


8
 Pub. L. No. 113-235, Div. E., Tit. VII, § 744, 128 Stat. 2130, 2391 (Dec. 16, 2014) and
Pub. L. No. 114-113, Div. E., Tit. VII, § 745, 129 Stat. 2242, 2485 (Dec. 18, 2015). For the
purpose of this report we refer to “corporations” as “contractors.”
9
 SAM is the primary government repository for prospective federal awardee information
and the centralized government system for certain contracting, grants, and other
assistance-related processes. It includes data collected from prospective federal
awardees required for the conduct of business with the government; prospective
contractor-submitted annual representations and certifications in accordance with FAR
subpart 4.12; and identification of those parties excluded from receiving federal contracts,
certain subcontracts, and certain types of federal financial and nonfinancial assistance
and benefits.
10
    All years in this report are calendar years unless otherwise specified.




Page 3                                                        GAO-19-243 Federal Contracting
considered before contract award (including task orders), 11 we analyzed
contract obligation information from the Federal Procurement Data
System–Next Generation (FPDS-NG) and selected for our review the five
agencies with the highest contract obligations associated with contract
awards for 2015 and 2016. We selected this 2-year period because it
included the most-recent contract award data available at the time of our
review and covered a period in which the newest FAR tax-debt provision
was implemented. 12 Specifically, we selected the three civilian agencies
with the highest obligations—the Departments of Energy (DOE), Health
and Human Services (HHS), and Veterans Affairs (VA)—and, within the
Department of Defense, the two agencies with the highest obligations—
the Departments of the Army and Navy. 13 The results of our review of
these five selected agencies are not generalizable to all federal agencies.
However, these five selected agencies awarded about 51 percent of
contract obligations associated with contract awards for 2015 and 2016.

We reviewed the selected agencies’ policies and procedures related to
awarding contracts to prospective contractors that report they owe certain
tax debts and we met with agency officials to discuss how their agencies
consider contractors’ reported federal tax debt before awarding a federal

11
  A task order is an order for services placed against an established contract or with
government sources. The established contract is called a task order contract, which is a
contract for services that does not procure or specify a firm quantity of services (other than
a minimum or maximum quantity) and that provides for the issuance of orders for the
performance of tasks during the period of the contract. For the purposes of our review, we
use the term “contract award” to include task orders.
12
   At the time we initiated our review, the 2016 contract obligation data were the most
current data available. FAR § 52.209-11(b)(1) became effective on February 26, 2016,
and § 52.209-5(a)(1)(i)(D) had been in place since 2008. Under FAR § 52.209-11(b)(1),
the prospective contractor represents whether it is a corporation that has any unpaid
federal tax liability that has been assessed, for which all judicial and administrative
remedies have been exhausted or have lapsed, and that is not being paid in a timely
manner pursuant to an agreement with the authority responsible for collecting the tax
liability. Under FAR § 52.209-5(a)(1)(i)(D), the prospective contractor certifies whether it or
any of its principals have, within a 3-year period preceding the offer, been notified of any
delinquent federal taxes in an amount that exceeds $3,500 for which the liability remains
unsatisfied. Delinquent federal taxes under this provision are those where the tax liability
is finally determined and assessed, with no pending administrative or judicial challenge,
and all judicial appeal rights exhausted; and the taxpayer is delinquent in making
payment, unless enforced collection action is precluded. The taxpayer is not delinquent if
the taxpayer has entered into an installment agreement and is making timely payments in
compliance with the agreement terms.
13
  For this report, we use “the Army” and “the Navy” to refer to the Departments of the
Army and Navy, respectively.




Page 4                                                       GAO-19-243 Federal Contracting
contract. Specifically, we met with agency officials who supervise
contracting officers, such as the Head of Contracting Activity, 14 Director of
Contracts, or other contracting managers, policy and procurement
officials, and suspension and debarment officials (SDO) from the selected
agencies. Additionally, we reviewed and analyzed applicable laws,
regulations, and policy memorandums, as well as applicable policies and
procedures, from DOE, HHS, VA, the Navy, and the Army for considering
contractors’ reported federal tax debt when awarding federal contracts. 15
We interviewed officials from the Office of Management and Budget’s
Office of Federal Procurement Policy, the Interagency Suspension and
Debarment Committee, and the Civilian Agency Acquisition Council to
obtain an understanding of how the law is implemented through the FAR.
We also met with the General Services Administration (GSA) to obtain an
understanding of SAM, including the registration of prospective
contractors and their reporting of certain federal tax debt pursuant to the
representation requirement of FAR § 52.209-11 and the certification
requirement of § 52.209-5. 16

As part of this work, we analyzed FPDS-NG contract award and SAM
contractor registration data to identify instances where contractors
reported having certain federal tax debt and received a contract award.
Specifically, we electronically matched FPDS-NG contract award data
from 2015 and 2016 to the relevant contractors’ SAM registration. We
then analyzed the relevant contractors’ representations and certifications
most recently updated in SAM before the relevant contract award to
identify all instances where contractors reported that they had a federal
tax debt as defined in FAR § 52.209-11 or § 52.209-5 within our time
frame. From the resulting list, we identified the contracts that selected
agencies awarded to contractors that reported these federal tax debts. In
addition, we reviewed a nongeneralizable sample of 15 contract awards

14
   The Head of the Contracting Activity means the official who has overall responsibility for
managing the contracting activity, including the authority to approve contracts before
award when necessary and monitoring a process to report contract data to FPDS-NG in
coordination with the Senior Procurement Executive. The Senior Procurement Executive
is responsible for managing the direction of the agency’s procurement system, including
implementation of the agency’s unique procurement policies, regulations, and standards.
15
  We did not meet with agency officials or review policies and procedures from all
contracting offices within each agency.
16
  GSA is an independent agency led by an administrator and manages the FPDS-NG and
SAM databases. For this report, we will use FAR § 52.209-11 or § 52.209-5 to refer to the
obligation to disclose tax debt in FAR § 52.209-11(b)(1) or § 52.209-5(a)(1)(i)(D).




Page 5                                                       GAO-19-243 Federal Contracting
from the five selected agencies to provide illustrative examples of the
extent to which these agencies’ control activities ensured required actions
were taken before contract award. These 15 contract awards were
selected based on numerous criteria, including the prospective
contractors’ (1) responses under FAR § 52.209-11 or § 52.209-5 in SAM
and (2) having tax debts as of December 15, 2016, that were not in a
repayment agreement with the IRS. 17 Further, when selecting contract
awards that had a § 52.209-5 certification we considered only contractors
having at least $3,500 in tax debts as of December 15, 2016. We
reviewed seven contract awards made to contractors that reported that
they had certain tax debts and eight contract awards made to contractors
that reported that they did not have certain tax debts as part of their §
52.209-11 representations and § 52.209-5 certifications in SAM. For
these 15 contract awards, we reviewed pre–contract award
documentation and copies of historical tax transcripts and other records,
such as revenue officers’ notes obtained from the IRS. 18

To determine the extent to which executive-branch agency contracts were
awarded in 2015 and 2016 to federal contractors with federal tax debt and
characteristics of those contract awards and contractors, we electronically
matched data from FPDS-NG on contract awards with (1) data from SAM
on contractors’ representations and certifications of their tax debt and (2)
data from the IRS on tax debts owed by these contractors. Our analysis
included all of the executive-branch agencies. Further, our analysis
describes some characteristics of these debts, including the total amount
of debt outstanding and whether or not contractors had unpaid taxes that
were timely paid or appeared to be finally determined as of December 15,
2016, which was the time of our data extract. We also analyzed whether
contractors that were assessed unpaid taxes in the IRS data 19 reported

17
  Our analysis of contractors in the IRS data includes only those with unpaid taxes that
were (1) assessed before a new contract award during 2015 and 2016; (2) unpaid as of
December 15, 2016; and (3) greater than $100 as of December 15, 2016. The amount of
$100 is defined by the IRS as a de minimis amount, below which any amount is so small
as to make accounting for it unreasonable or impractical. We analyzed contracts awarded
before December 15, 2016.
18
  For the illustrative examples presented in this report, we rounded tax debt and contract
obligation amounts, did not identify the awarding agency, and did not meet with awarding
agency officials to discuss each contract award to protect sensitive taxpayer information.
19
  As mentioned, our analysis of contractors in the IRS data includes only those with
unpaid taxes that were (1) assessed before a new contract award during 2015 and 2016;
(2) unpaid as of December 15, 2016; and (3) greater than $100 as of December 15, 2016.




Page 6                                                     GAO-19-243 Federal Contracting
having certain tax debts as part of their § 52.209-11 representations and
§ 52.209-5 certifications in SAM. We reviewed the most-recent § 52.209-
11 representation and § 52.209-5 certification prior to the relevant
contract award.

To determine the extent to which the IRS identified selected federal
contractors’ payments for levy in 2015 and 2016, we identified the
population of contractors that owed taxes at the time they received a
contract award during our period by matching FPDS-NG, SAM, and IRS
Unpaid Assessment data, as described above. We then determined
whether the tax debt had ever been identified for levy by the Federal
Payment Levy Program (FPLP) as of December 15, 2016, according to
IRS data. 20 We also interviewed IRS officials about levying federal
contractor payments and reviewed Internal Revenue Manual sections and
other relevant documents from the IRS.

We assessed the reliability of FPDS-NG, SAM, and IRS Unpaid
Assessment data by reviewing relevant documentation, interviewing
knowledgeable agency officials, and performing electronic testing to
determine the validity of specific data elements in the databases and
determined that these databases were sufficiently reliable for the
purposes of our reporting objectives. For additional details on our scope
and methods, see appendix I.

We conducted this performance audit from February 2017 to April 2019 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.



20
  In July 2000, the IRS, in conjunction with the Department of the Treasury (Treasury),
Bureau of the Fiscal Service (Fiscal Service), started the FPLP, which is authorized by
I.R.C. § 6331(h).Through the FPLP, the IRS can collect overdue taxes through a
continuous levy on certain federal payments disbursed by the Fiscal Service. There are
certain situations for which contractors with tax debt can be excluded from the FPLP such
as currently not collectible hardship accounts, approved installment agreements, pending
or approved offers in compromise, and open bankruptcies or litigation. Further, IRS
revenue officers can exclude a contractor’s account from FPLP if they are working with the
taxpayer to resolve the tax debt.




Page 7                                                    GAO-19-243 Federal Contracting
Background
Pertinent Regulations      The FAR, among other things, sets forth requirements that must be met
Governing Federal          before agencies can award contracts to prospective contractors.
                           Beginning February 26, 2016, contracting officers are required to include
Contractors and Tax Debt
                           a provision in all contract solicitations that require contractors to report
                           information about unpaid federal taxes regardless of the contract value. 21
                           Specifically, FAR § 52.209-11 incorporates the language from the fiscal
                           years 2015 and 2016 appropriations acts that prohibits the government
                           from entering into contracts with corporations with unpaid federal taxes
                           that

                           •     have been assessed,
                           •     for which all judicial and administrative remedies have been
                                 exhausted or have lapsed, and
                           •     that are not being paid in a timely manner pursuant to an agreement
                                 with the authority responsible for collecting the tax liability,
                           •     where the awarding agency is aware of the unpaid tax liability,
                           •     unless an agency has considered suspension or debarment of the
                                 corporation and made a determination such action is not necessary to
                                 protect the interests of the government.

                           If the prospective contractor reports having unpaid federal taxes under
                           this provision, 22 the contracting officer must

                           •     request additional information from the prospective contractor;
                           •     in accordance with agency procedures, notify the officials responsible
                                 for debarment and suspension actions, commonly referred to as the
                                 suspension and debarment officials (SDO); and
                           •     not award to the corporation unless an agency SDO has considered
                                 suspension or debarment of the corporation and has made a




                           21
                               A solicitation is any request to submit offers or quotations to the government.
                           22
                              Or unpaid federal taxes reported under the alternative FAR provision for commercial
                           items, § 52.212-3(q)(2)(i).




                           Page 8                                                        GAO-19-243 Federal Contracting
     determination that suspension or debarment is not necessary to
     protect the interests of the government. 23

Additionally, the FAR requires that contracting officers include in certain
contract solicitations another provision for prospective contractors to
report delinquent taxes. Specifically, contracting officers are also required
to include FAR § 52.209-5 in contract solicitations in which the contract
value is expected to exceed the simplified acquisition threshold, which
was generally $150,000 at the time of our review, under which
prospective contractors report delinquent federal taxes owed. 24 This
requirement has been in place since 2008. Under this provision, the
prospective contractor must report whether it or any of its principals have,
within the preceding 3-year period, been notified of “delinquent federal
taxes” in an amount that exceeds $3,500. 25 For purposes of this
provision, “delinquent federal taxes” are those for which

•    the tax liability is finally determined and assessed, with no pending
     administrative or judicial challenge, and all judicial appeal rights are
     exhausted; 26 and
•    the taxpayer is delinquent in making payment, unless enforced
     collection action is precluded (the taxpayer is not delinquent if the
     taxpayer has entered into an installment agreement and is making
     timely payments in compliance with the agreement terms). 27

If the prospective contractor reports having federal tax debt under this
provision, the contracting officer must (1) request additional information
from the prospective contractor and (2) in accordance with agency

23
  FAR § 9.104-5(b). FAR § 9.405 generally notes that contractors debarred, suspended,
or proposed for debarment are excluded from receiving contracts and, if applicable,
subcontracts, for a set period unless the agency head determines that there is a
compelling reason to award the contract.
24
  The simplified acquisition threshold is set by statue but reviewed by the FAR Council
every 5 years for possible adjustment for inflation.
25
  Prior to October 1, 2015, this amount was $3,000. 80 Fed. Reg. 38293, 38299 (July 2,
2015). The alternative FAR provision for commercial items, § 52.212-3(h)(4), requires the
same reporting from prospective contractors for commercial item contracts.
26
  For the purposes of this report, we use the term “finally determined” as defined in FAR §
52.209-5, which is that the tax liability has been assessed, with no pending administrative
or judicial challenge, and all judicial appeal rights are exhausted.
27
  For the purposes of our report, we use the term “qualifying federal tax debt” to refer to
those debts that would meet the definition provided in FAR § 52.209-11 or § 52.209-5.




Page 9                                                       GAO-19-243 Federal Contracting
                          procedures notify the officials responsible for debarment and suspension
                          actions. Further, the contracting officer is not required to receive a
                          suspension and debarment determination before contract award for tax
                          debt reported under this certification. 28

                          In addition, the FAR generally requires prospective contractors to register
                          in SAM before a contract can be awarded. 29 As part of registering in SAM,
                          prospective contractors must make up to 54 representations and
                          certifications, which must be updated as necessary but at least
                          annually. 30 Included among these is the federal tax debt FAR § 52.209-11
                          representation and § 52.209-5 certification. The representations and
                          certifications in SAM must be kept current, accurate, and complete.

                          Unpaid federal tax debts reported under FAR § 52.209-11 and delinquent
                          federal taxes reported under § 52.209-5 do not automatically disqualify
                          the prospective contractor from receiving a contract, but rather are used
                          as part of the contracting officer’s responsibility determination of the
                          prospective contractor. Contracting officers rely on the contractors’
                          representations and certifications in SAM to identify qualifying federal tax
                          debts. Federal tax law generally prohibits the IRS from disclosing
                          taxpayer data to other federal agencies for the purpose of determining
                          whether potential contractors owe qualifying federal tax debt. 31 As a
                          result, contracting officers cannot verify a contractor’s tax-debt status by
                          obtaining taxpayer information directly from the IRS without the
                          contractor’s prior consent.


Pre–Contract Award        In general, the federal pre–contract award process consists of the agency
Requirements Related to   identifying its needs for goods and services, creating an acquisition plan,
                          posting a solicitation that allows interested contractors to submit bids or
Tax Debt
                          proposals, and assessing and selecting a prospective contractor to meet
                          its needs. Agency contracting personnel have a variety of pre–contract

                          28
                             FAR § 9.104-5(a)(2) only requires that contracting officers notify an SDO, before
                          contract award, when a prospective contractor certified to having tax debt under § 52.209-
                          5.
                          29
                            FAR § 4.1102(a) (2016). Effective October 26, 2018, § 4.1102 and several other
                          provisions in the FAR were amended to require offeror registration in SAM prior to
                          submission of an offer, rather than prior to award. 83 Fed. Reg. 48691 (Sept. 26, 2018).
                          30
                           FAR § 4.1201(a) and (b).
                          31
                           I.R.C. § 6103.




                          Page 10                                                    GAO-19-243 Federal Contracting
award responsibilities. As one of these responsibilities, the contracting
officer is to identify the FAR provisions and clauses required to be
included in contract solicitations based on various criteria, such as the
contract type and contract value. 32 For example, contracts expected to be
above the simplified acquisition threshold are required to include §
52.209-5 in the solicitation. After the solicitation is issued and prospective
contractors’ offers are obtained, the contracting officer, among other
tasks, generally must verify that the prospective contractor is registered in
SAM, and that the contractor is not suspended or excluded from doing
business with the federal government prior to contract award. 33

The contracting officer must also determine whether the prospective
contractor is “responsible.” FAR § 9.104-1 requires that to be determined
responsible, prospective contractors must have adequate financial
resources to perform the contract, or the ability to obtain them; have a
satisfactory record of integrity and business ethics; and be otherwise
qualified and eligible to receive an award under applicable laws and
regulations, among other things. As part of the responsibility
determination, the contracting officer must also access, review, and
document the prospective contractor’s applicable representations and
certifications, including qualifying federal tax debt reported under §
52.209-11 and § 52.209-5. 34 See figure 1 for an overview of the pre–
contract award requirements related to tax debt.




32
  Generally, if the contract amount is greater than $25,000, then the agency posts a
solicitation on the Federal Business Opportunities (FedBizOpps) website, available at
https://www.fbo.gov. At a minimum, a solicitation identifies what an agency wants to buy,
provides instructions to would-be offerors, identifies the source selection method that will
be used to evaluate offers, and includes a deadline for the submission of bids or
proposals.
33
  FAR § 4.1103(a)(1) and FAR § 9.405(d)(1) and (4), respectively.
34
  FAR § 4.803(a)(11) and § 9.105-1(a) requires contracting officers possess or obtain
information to meet applicable standards, such as contractors’ SAM representations and
certifications, and include such document the information in the contract file.




Page 11                                                      GAO-19-243 Federal Contracting
Figure 1: Overview of Pre–Contract Award Requirements Related to Qualifying Federal Tax Debt




                                        a
                                         Qualifying federal tax debt refers to those tax debts that would meet the definition provided in FAR §
                                        52.209-11 or § 52.209-5.
                                        b
                                         Effective October 26, 2018, offerors must be registered in SAM prior to submission of an offer, rather
                                        than prior to award. 83 Fed. Reg. 48691 (Sept. 26, 2018).




                                        Page 12                                                            GAO-19-243 Federal Contracting
IRS Levies to Collect     The IRS, which is located in the Department of the Treasury (Treasury)
Unpaid Taxes              and led by a commissioner, may collect assets or payments, including
                          federal contract payments to collect unpaid taxes, and these collections
                          are referred to as a “levy.” 35 The IRS will usually levy only after notifying
                          the taxpayer in writing of the amount of the unpaid tax and the right of the
                          taxpayer to request a hearing within a 30-day period before the levy
                          occurs. However, if the taxpayer is a federal contractor, the taxpayer is
                          given the opportunity for the hearing within a reasonable period after the
                          levy. 36 One way the IRS levies federal contractor payments is through the
                          FPLP, which is an automated program that can collect overdue taxes
                          through a continuous levy on certain federal payments processed by
                          Treasury’s Bureau of the Fiscal Service (Fiscal Service). In addition to the
                          FPLP, the IRS can also levy federal contractors manually. Specifically,
                          the IRS may levy federal contractor payments directly from federal
                          agencies to collect unpaid taxes. 37



Selected Agencies
Have Controls to
Identify Contractors’
Reported Tax Debt,
but the Controls Were
Potentially Ineffective
at Ensuring
Compliance with
Regulations


                          35
                            I.R.C. § 6331.
                          36
                            I.R.C. § 6330(f)(4).
                          37
                            According to IRS officials, the IRS has the authority to contact third parties directly,
                          including federal agencies, for the purpose of establishing a levy to collect unpaid taxes.
                          For example, a revenue officer may contact a federal agency to establish a levy of a
                          contract payment to collect unpaid taxes owed by the contractor prior to giving the
                          Collection Due Process notice. In doing so, the revenue officer would not share the
                          contractor’s full tax history, but only the information necessary to establish the levy.




                          Page 13                                                     GAO-19-243 Federal Contracting
Agencies Have Control       The five selected agencies we examined have established control
Activities to Identify      activities to varying degrees to help contracting officers comply with
                            federal laws and regulations related to identifying prospective contractors’
Contractors That Reported
                            reported qualifying federal tax debt. These control activities include the
Qualifying Federal Tax      following:
Debt
                            •     Class Deviations: The five agencies issued class deviations from the
                                  FAR to implement the tax debt–related appropriations restriction prior
                                  to February 26, 2016. 38 These class deviations generally required
                                  contracting officers to include an alternative provision in solicitations
                                  and, if a contractor reported having qualifying tax debt, to not award
                                  the contract without a written suspension and debarment
                                  determination from an agency SDO. For example, the Department of
                                  Defense, DOE, HHS, and VA issued class deviations as early as 2012
                                  that required contracting officers to take two actions: (1) insert an
                                  alternate provision when issuing solicitations using appropriated funds
                                  and (2) obtain an SDO determination that suspension or debarment is
                                  not necessary to protect the interests of the government before
                                  awarding a contract to a contractor who reported qualifying tax
                                  debts. 39
                            •     Policies and Procedures: VA, DOE, and HHS issued policies and
                                  procedures to varying degrees that generally direct contracting
                                  officers to the relevant sections of the FAR when assessing contractor
                                  responsibility. For example, both VA and DOE issued policies or
                                  guidance on determining contractor responsibility and including §
                                  52.209-5 in solicitations where the value was expected to exceed the
                                  simplified acquisition threshold. In addition, agency officials who
                                  supervise contracting officers told us that contracting officers use
                                  contractors’ representations and certifications in SAM to identify
                                  qualifying federal tax debts and document their review of the
                                  information when determining contractor responsibility before contract



                            38
                              Agencies issue class deviations when the agency must take alternative acquisition
                            actions to meet specific agency needs and requirements that affect more than one
                            contract. All five of these agencies were subject to similar appropriation act restrictions as
                            early as 2012, and issued relevant class deviations to implement these restrictions prior to
                            February 26, 2016, as discussed below. See, for example, Pub. L. No. 112-74, Div. A, Tit.
                            VIII, § 8124, 125 Stat. 786, 837 (Dec. 11, 2011). The appropriations acts restriction were
                            included in the FAR via the rulemaking process, thus none of these class deviations are
                            currently active.
                            39
                                Department of Defense class deviations are applicable to both the Army and the Navy.




                            Page 14                                                      GAO-19-243 Federal Contracting
     award. 40 For example, one of the Navy’s responsibility-determination
     templates requires contracting officers to notate that they verified, in
     SAM, that the prospective contractor did not report qualifying federal
     tax debts under FAR § 52.209-5. 41
     Further, the five agencies have also issued procedures outlining the
     SDO suspension and debarment referral and review process, as
     required by federal regulations. For example, HHS issued guidance
     on suspension and debarment that includes (1) relevant contact
     information, (2) required or optional documentation to include, and (3)
     potential causes for suspension or debarment, such as the contractor
     reported qualifying federal tax debt. Both the Army and Navy issued
     policy alerts informing contracting officers of the February 26, 2016,
     effective date of FAR § 52.209-11 42 and the requirement that an SDO
     determine that suspension or debarment is not necessary to protect
     the interests of the government before awarding a contract to a
     contractor who reported having tax debts under this provision.

•    Contract-File Compliance Tools: The five agencies told us that
     contracting officers have tools available that help ensure required
     information, including information related to federal tax debt, is
     reviewed and documented in contract files. For example, contracting
     officer supervisors and policy officials at these agencies told us that
     contracting officers use agency contract-writing systems to assist with
     identifying and inserting required FAR provisions and clauses in the
     contract solicitation. 43 HHS and VA contracting officer supervisors
     also told us contracting officers use contract-file checklists to ensure

40
  During the course of our review, agency officials told us that contracting officers also
review the “Debt Subject to Offset” flag, which was known as the “Delinquent Federal
Debt” flag prior to June 15, 2017, in SAM when determining a contractor’s responsibility
before contract award. However, the “Debt Subject to Offset” flag indicates a delinquent
debt subject to the Treasury Offset Program. The Debt Subject to Offset flag does not
reflect the contractor’s qualifying federal tax debt reported under § 52.209-11 or § 52.209-
5 in SAM.
41
  The Navy contracting office memorandum also documents the contracting officers’
consideration of contractors’ responses under FAR § 52.212-3.
42
  As mentioned previously, for this report, we will use FAR § 52.209-11 or § 52.209-5 to
refer to the obligation to disclose tax debt in FAR § 52.209-11(b)(1) or § 52.209-
5(a)(1)(i)(D).
43
  FAR § 52.301 provides a matrix listing the FAR provisions and clauses relevant to each
new contract type or purpose, which can be used to manually identify required provisions
and clauses.




Page 15                                                     GAO-19-243 Federal Contracting
                                            required FAR provisions and clauses are included in the contract
                                            solicitation. In addition, some of the five selected agencies’ contract-
                                            file checklists or memorandums we reviewed generally document that
                                            the contracting officer verified the prospective contractor’s SAM
                                            registration, and suspension and debarment status, and retrieved the
                                            relevant SAM representations and certifications before contract
                                            award. Further, some VA and DOE contract checklists we reviewed
                                            also document that the contracting officer considered tax debts
                                            reported under § 52.209-5 or federal tax debt in general (see fig. 2).

Figure 2: Excerpt from Agency Contract Award Checklist




                                        Page 16                                          GAO-19-243 Federal Contracting
                             •    Periodic Compliance Reviews of Samples of Contracts: The five
                                  agencies’ policy officials and contracting officer supervisors we
                                  interviewed told us they generally conduct compliance reviews on a
                                  sample of contract files before and after contract award to ensure that
                                  the required FAR provisions and clauses are inserted in contract
                                  solicitations, including peer-to-peer, management, and legal
                                  compliance reviews. Agency officials also told us this includes
                                  verifying that the contracting officer considered and documented the
                                  prospective contractors’ SAM representations and certifications before
                                  contract award. For example, the Army’s procurement management
                                  review program is designed to ensure regulatory and policy
                                  compliance, among other things, via oversight by a multilevel program
                                  that reviews each contracting activity every 3 years.
                             •    Training: DOE and VA provide training that generally discusses
                                  contractor responsibility determinations and references the
                                  requirement that contracting officers inform the SDO when
                                  prospective contractors report that they have qualifying federal tax
                                  debt before contract award. The Department of Defense provides
                                  training on the causes for suspension, and the Navy SDO also
                                  provides training discussing the requirement to notify the SDO when
                                  prospective contractors report qualifying federal tax debt. HHS
                                  suspension and debarment staff we interviewed told us that they
                                  provide general suspension and debarment training that includes
                                  causes for suspension and debarment referrals, such as tax debt.
                                  Further, one Navy contracting office also provides training on inserting
                                  the tax-debt provision in all contract solicitations.

Selected Agencies’ Control   We identified 1,849 contracts awarded by the five selected agencies in
Activities Potentially Did   2015 and 2016 to contractors that reported qualifying federal tax debt that
                             potentially should have resulted in these agencies taking required follow-
Not Ensure Compliance
                             up actions before contract award, such as notifying the agency SDO of
with Requirements            these tax debts. Specifically, according to our analysis of FPDS-NG and
Related to Contractors’      SAM data for this period, the five selected agencies potentially should
Reported Qualifying Tax      have notified an SDO prior to awarding 1,849 contracts to contractors that
Debt                         reported having qualifying federal tax debt under their § 52.209-11
                             representation or § 52.209-5 certification, which we discuss further
                             below. 44 However, none of the five selected agencies’ SDOs we
                             interviewed were notified of any instances in which a contracting officer

                             44
                               The 1,849 contracts awards can be associated with contractors’ qualifying federal tax
                             debt reported before contract award under either § 52.209-11 or § 52.209-5, or both.




                             Page 17                                                   GAO-19-243 Federal Contracting
identified a prospective contractor with these reported qualifying federal
tax debts, and they did not receive any tax debt-related referrals within
this period. Agency officials we interviewed were unable to explain why
the SDOs were not notified without reviewing each of the 1,849 contract
files. Because referrals were not made to an SDO before awarding the
contract, agencies’ control activities do not appear to have operated
effectively to identify contractors’ reported tax debt and to consider
suspension and debarment when required. As a result, these contracts
may have been awarded without required actions being taken—a
potential violation of federal regulations and, in some cases, the
Antideficiency Act. 45

In addition, we reviewed a nongeneralizable sample of seven contracts
where prospective contractors reported qualifying tax debts before
receiving contract awards and identified two illustrative examples where
agency control activities did not ensure regulatory compliance. The tax
debts for these contractors were collectively more than $250,000, and
historical IRS tax records include instances 46 where the IRS had
assessed a Trust Fund Recovery Penalty (TFRP), indicating willful failure
to collect, account for, or pay taxes owed. 47 Nonetheless, the contracting
officers awarded these two contracts without taking required follow-up
actions for these awards. These contractors were awarded more than
$510,000 in contract obligations in total, in 2015 and 2016.

45
   The Antideficiency Act, among other things, prohibits agencies from obligating funds in
excess of the amount available in the appropriation. The 2015 and 2016 appropriations
statutes contain a government-wide provision stating that, among other things, funds may
not be used to enter into a contract with any corporation that has any unpaid federal tax
liability, when the awarding agency is aware of the unpaid tax liability, unless a federal
agency has considered suspension or debarment of the corporation and has made a
determination that this further action is not necessary to protect the interests of the
government. Thus, obligating funds to a contractor who reported federal tax debt without
taking the follow-up steps required by law indicates the obligations were potentially made
without authorization.
46
  Due to I.R.C. § 6103 requirements related to safeguarding taxpayer information, we
cannot disclose the number of examples associated with TFRPs.
47
  Specifically, when a business willfully fails to collect, account for, or pay the taxes it is
legally required to withhold from its employees’ wages, such as Social Security or
individual income-tax withholdings (what is commonly referred to as “trust fund taxes”), the
IRS assesses underpayment penalties against the business and may impose an
additional TFRP against the responsible officers. Having a TFRP does not disqualify a
contractor from obtaining a contract, but can be considered when the agency determines
prospective contractors’ responsibility and whether to suspend or debar, according to
agency contracting or suspension and debarment officials we spoke with.




Page 18                                                      GAO-19-243 Federal Contracting
Four Agencies Did Not Take     In our analysis of the five selected agencies, we identified 143 contracts
Potentially Required Actions   at four of the agencies that were awarded to contractors who reported
before Contract Award When     qualifying federal tax debt in SAM under § 52.209-11 from February 26,
Contractors Reported           2016, through December 31, 2016. 48 Table 1 shows the number of
Qualifying Federal Tax Debt    contract awards to contractors who reported qualifying federal tax debt
under FAR § 52.209-11          under § 52.209-11 from February 26, 2016, through December 31, 2016,
                               by selected agency. We did not identify contracts awarded by DOE during
                               this period to similar contractors, and thus did not assess the operational
                               effectiveness of the agency’s controls activities for compliance with its
                               relevant class deviation. 49

                               Table 1: Number of Contracts Awarded by Selected Agencies to Contractors That
                               Reported Qualifying Tax Debt under § 52.209-11 from February 26, 2016, through
                               December 31, 2016

                                Agency                                                                                  Contract awards
                                Department of Defense, Army                                                                            73
                                Department of Defense, Navy                                                                            54
                                Department of Energy                                                                                    0
                                Department of Health and Human Services                                                                 7
                                Department of Veterans Affairs                                                                          9
                                Total                                                                                                143
                               Source: GAO analysis of General Services Administration data. | GAO-19-243




                               48
                                 This analysis is limited to this 10-month period because the FAR requirements related to
                               § 52.209-11 representations were effective beginning February 26, 2016. Therefore,
                               contracting officers did not need to include this provision in solicitations, and prospective
                               contractors did not report tax debt in SAM under § 52.209-11, until February 26, 2016.
                               However, all five agencies issued class deviations prior to this period directing contracting
                               officers to include alternative provisions when issuing solicitations using funds
                               appropriated in 2015 and 2016. Our analysis reviewed the § 52.209-11 representations in
                               SAM most recently updated by the contractor before their relevant contract award. We
                               could not determine based on available data whether there was a solicitation issued for
                               each of these 143 contract awards, the tax-debt provisions were included as appropriate,
                               and the contractor also reported these qualifying tax debts under the alternative agency
                               provision, which is necessary to determine whether § 52.209-11 is relevant.
                               49
                                 As mentioned earlier, DOE’s class deviation required contracting officers to insert and
                               use an alternative provision in all solicitations, regardless of the estimated value, to meet
                               this requirement. We discuss contracts awarded by this agency to contractors that
                               reported they had tax debt under 52.209-5 during this period below.




                               Page 19                                                                      GAO-19-243 Federal Contracting
However, none of the four agencies that awarded these 143 contracts
took required follow-up actions that potentially should have resulted from
the contractor’s reporting qualifying tax debt before contract award. As
mentioned earlier, when prospective contractors report having qualifying
federal tax debt under § 52.209-11, the FAR requires that contracting
officers (1) request that the contractor provide such additional information
as the contractor deems necessary in order to demonstrate responsibility;
(2) notify, in accordance with agency procedures, the SDO of the
contractor’s reported qualifying federal tax debt, before award, for
suspension and debarment review; and (3) not award the contract unless
an SDO determines that further action is not required to protect the
interest of the government. 50 The FAR also requires that contracting
officers possess or obtain information sufficient to determine whether the
prospective contractor is responsible. 51 As mentioned above, qualifying
federal tax debts reported under this representation do not automatically
disqualify the prospective contractor from receiving a contract, but rather
are used as part of the contracting officer’s responsibility determination of
the prospective contractor. In our review of contract-file documentation for
seven contract awards to contractors that reported they had qualifying tax
debt under either provision, we could determine for one case under this
representation that the contracting officer did not take required follow-up
actions to ensure compliance with federal regulations. We highlight this
example in the sidebar to the left. 52

Agency contracting officer supervisors we interviewed from the four
selected agencies that awarded the 143 contracts discussed earlier told
us that they were not aware of any instances in which a contracting officer
identified a prospective contractor’s reported qualifying federal tax debt
under § 52.209-11 and notified the SDO during this period. As mentioned,
the SDOs we interviewed at these four agencies told us that they did not
50
  Under FAR § 9.405(a), contractors debarred, suspended, or proposed for debarment
are excluded from receiving contracts, and agencies shall not solicit offers from, award
contracts to, or consent to subcontracts with these contractors, unless the agency head
determines that there is a compelling reason for such action. Such contractors are also
excluded from conducting business with the government as agents or representatives of
other contractors.
51
 FAR § 9.105-1(a) and applicable standards in § 9.104, as discussed earlier.
52
  For the remaining five contract awards, we could not determine, using the provided
contract-file documentation, whether the contracting officers were required to consider
these reported tax debts before contract award. Specifically, the agency contract-file
documentation we reviewed did not indicate whether a solicitation was issued and the tax-
debt provisions were included as appropriate before contract award.




Page 20                                                   GAO-19-243 Federal Contracting
                               receive, nor were they aware of, any notifications to review prospective
                               contractors that reported having qualifying federal tax debt during this
                               period. All four of these SDOs told us that they track notifications to the
                               SDO manually or via a case-management tracking system. Further, none
                               of the agency officials we interviewed at the selected agencies were able
                               to identify specific reasons a contracting officer would not notify an SDO
                               of reported qualifying federal tax debt as required.

Five Agencies Did Not Take     Our analysis of the five selected agencies also identified 1,706 contracts
Potentially Required Actions   awarded in 2015 and 2016 to contractors that reported having qualifying
before Contract Award When     federal tax debt in SAM under § 52.209-5. 53 Table 2 shows the number of
Contractors Reported           contract awards to contractors that reported having qualifying tax debt
Qualifying Federal Tax Debt    under § 52.209-5 in 2015 and 2016, by selected agency.
under FAR § 52.209-5
                               Table 2: Number of Contracts Awarded by Selected Agencies to Contractors That
                               Reported Qualifying Tax Debt under § 52.209-5 in Calendar Years 2015 and 2016

                                Agency                                                                                  Contract awards
                                Department of Defense, Army                                                                          324
                                Department of Defense, Navy                                                                          266
                                Department of Energy                                                                                   22
                                Department of Health and Human Services                                                                78
                                Department of Veterans Affairs                                                                      1,016
                                Total                                                                                               1,706
                               Source: GAO analysis of General Services Administration data. | GAO-19-243



                               However, none of the five agencies that awarded these 1,706 contracts
                               took required follow-up actions that potentially should have resulted from
                               the contractor’s reporting qualifying tax debt before contract award. As
                               mentioned above, as early as 2008, contractors were required to certify
                               whether they had qualifying federal tax debt if, within the preceding 3-year
                               period, they or any of their principals had been notified of “delinquent
                               federal taxes” in an amount that exceeds $3,500 for which the liability
                               remained unsatisfied. Also as previously mentioned, tax debts must only
                               be reported under this provision if the tax liability is finally determined with
                               no pending administrative or judicial challenge, all judicial appeal rights
                               have been exhausted, enforcement action is not precluded, and the
                               53
                                 We could not determine based on available data whether there was a solicitation issued
                               for each of these 1,706 contract awards, whether the contract value was expected to be
                               above the simplified acquisition threshold, and the tax-debt provisions were included as
                               appropriate, which is necessary to determine whether § 52.209-5 is relevant.




                               Page 21                                                                      GAO-19-243 Federal Contracting
taxpayer is not in compliance with an installment repayment agreement.
Qualifying federal tax debts reported under this certification do not
automatically disqualify the prospective contractor from receiving a
contract, but rather are used as part of the contracting officer’s
responsibility determination. Further, contracting officers are to insert this
FAR provision in solicitations where the value of the contract is expected
to be greater than the simplified acquisition threshold. If a prospective
contractor reports qualifying tax debt, contracting officers must request
such additional information as the contractor deems necessary in order to
demonstrate responsibility, and, prior to proceeding with the award, notify
the agency’s SDO in accordance with agency procedures.

While we cannot readily determine whether all 1,706 contract awards
were out of compliance with federal regulations due to limitations in the
data, as discussed earlier, our review of seven contract awards with
reported qualifying tax debt under either provision identified an instance
under this certification where we confirmed that the solicitation was above
the simplified acquisition threshold and the contracting officer did not take
follow-up actions to ensure compliance with federal regulations (see
sidebar to the left). 54

As mentioned, agency contracting officer supervisors we interviewed from
the five agencies told us that they were not aware of any instances in
which a contracting officer identified a prospective contractor’s reporting
qualifying federal tax debt under § 52.209-5 and notified the SDO during
this period. Further, SDOs we interviewed at these five agencies told us
that they did not receive, nor were they aware of, any notifications
identifying prospective contractors that reported qualifying federal tax
debt under this FAR provision during this period. As mentioned earlier,
four out of the five SDOs told us that they track SDO notifications, and
none of the agency officials we interviewed identified specific reasons a
contracting officer would not notify an SDO as required.

When discussing these 1,849 contracts with agency officials, they were
unable to explain whether or why their control activities did not operate
54
  As discussed earlier, we could not determine using the provided contract-file
documentation whether the contracting officers were required to consider these reported
qualifying tax debts before contract award for the remaining five contracts. The remaining
eight out of the 15 contracts reviewed were awarded to prospective contractors that
reported they did not have qualifying tax debt before contract award. We do not report the
results of this contract-file review due to contract-file documentation limitations, as
discussed earlier and further below.




Page 22                                                    GAO-19-243 Federal Contracting
effectively to ensure compliance with applicable federal laws and
regulations. To do so, some of these officials told us that they would need
to review the contract files for each of the 1,849 instances of potential
noncompliance we identified. Specifically, the agency must confirm that
(1) a solicitation was issued, and (2) the estimated value of the contract
award was above the simplified acquisition threshold, when applicable, to
determine whether the regulatory requirements applied. If the regulatory
requirement applied to the contract award, the agency must then
determine why their control activities did not operate effectively to ensure
compliance. We plan to refer these contract awards to the appropriate
agency’s Inspector General for review, and share them with the agencies
at that time as well. Understanding why existing control activities
potentially did not operate effectively will help these agencies ensure they
are taking necessary steps to protect the interests of the government and
avoid the misuse of appropriated funds in the future.

The five selected agencies told us, in response to our review, they plan to
take actions to improve control activities to identify contractors’ federal tax
debts reported under § 52.209-11 and § 52.209-5. These planned actions
include issuing new guidance, providing additional training, verifying that
contracting officers considered reported tax debts in postaward
compliance reviews, and updating preaward contract-file checklists to
ensure compliance with federal laws and regulations.

Some of the selected agencies also noted that the FAR requirements
apply to all executive agencies and that a broader solution to accessing,
identifying, and reviewing qualifying federal tax debt reported in SAM
representations and certifications could be useful. Agency officials
explained that contracting officers have to individually identify and review
each relevant representation and certification—up to 54 representations
and certifications—to become aware of the prospective contractor’s
response before contract award. Further, agency officials told us that
contractors’ responses are not easily identifiable in SAM and contracting
officers can miss the contractor’s reported qualifying federal tax debt
under § 52.209-11 and § 52.209-5. As mentioned earlier, accessing,
reviewing and documenting the SAM representations and certifications is
one part of the preaward contracting process and is one of the actions
contracting officers are required to take as part of the contract award
process. The SAM tax-related representations and certifications that must
be reviewed before contract award are determined by various factors,
including contract award value. See figure 3 for an overview of the
general process to access, review, and identify prospective contractors’
qualifying tax debts reported in SAM.


Page 23                                            GAO-19-243 Federal Contracting
Figure 3: Process for Accessing, Reviewing, and Identifying Prospective Contractors’ Qualifying Tax Debt Reported in the
System for Award Management




                                         Note: Data are from public SAM registration records search and the SAM Federal User Guide.




                                         Page 24                                                        GAO-19-243 Federal Contracting
As mentioned earlier, GSA manages SAM, and while the GSA official we
interviewed acknowledged the challenges raised by the selected
agencies, this official noted that SAM representation and certification data
are accessible to contracting officers for the purpose of reviewing
qualifying federal tax debt reported by prospective contractors and taking
any required follow-up actions. Nevertheless, this official noted that GSA
is in the process of upgrading SAM, which may include changes to the
representations and certifications. Standards for Internal Control in the
Federal Government state that management should use high-quality
information to achieve its objectives and that management should
consider the accessibility of information and make revisions when
necessary so that the necessary information is accessible. 55 As GSA
makes planned upgrades to SAM, it is in a position to consider
improvements to SAM users’ experience with representations and
certifications that may help executive-branch agency contracting officers
more easily identify contractors’ reported qualifying federal tax debt under
§ 52.209-11 and § 52.209-5.




55
  GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: Sept. 10, 2014). High-quality information is accessible, current, and
complete, among other characteristics.




Page 25                                                    GAO-19-243 Federal Contracting
                         Of the 120,000 federal contractors that were awarded contracts in 2015
Federal Contracts        and 2016, our analysis found that over 4,600 of them had unpaid taxes 56
Were Awarded to          at the time they received the award. These contractors collectively owed
                         $1.8 billion in unpaid taxes as of December 15, 2016, and received
Thousands of             contract award obligations totaling $17 billion. We could not confirm,
Contractors with         however, whether at the time of the contract awards these contractors’
                         unpaid taxes met the relevant legal definitions of qualifying federal tax
Potentially Qualifying   debt under § 52.209-11 and § 52.209-5 due to limitations in the data. 57
Federal Tax Debt         However, we were able to determine which debts likely met the definition
                         of qualifying tax debt, and to determine those that did not meet the
                         definition, as of December 15, 2016—a date after the contract award.
                         Specifically, over 2,700 of these contractors had unpaid taxes that were
                         all likely qualifying federal tax debt as of December 15, 2016. 58 In
                         addition, about 1,900 had unpaid taxes that were not qualifying federal
                         tax debt. As previously noted, agencies are required by the FAR to
                         consider contractors’ reported qualifying federal tax debt before awarding
                         contracts. Generally, as mentioned earlier, agencies are not restricted
                         from awarding contracts to contractors that report having qualifying
                         federal tax debt if an agency SDO determines suspension and debarment
                         of the contractor is not necessary to protect the interests of the

                         56
                           Our analysis includes all of the executive-branch agencies with contract awards in 2015
                         and 2016. This analysis includes only contractors with unpaid taxes that (1) were greater
                         than $100 and (2) remained unpaid as of December 15, 2016. Our analysis describes
                         some characteristics of these contractors, including the total amount of debt outstanding
                         and whether or not contractors likely had qualifying federal tax debt, as of December
                         2016, which was the time of our data extract. Our analysis may understate the population
                         of contractors with tax debt to the extent that contractors owed federal taxes at the time of
                         a new contract award during this period but resolved their tax debts before December 15,
                         2016. Additionally, our analysis does not focus on any contractors that owed tax debt and
                         to whom federal agencies obligated funds during 2015 and 2016 for modifications to
                         contracts awarded in 2014 or earlier. Federal agencies obligated $400 billion in 2015–
                         2016 for awards made in 2014 or earlier, which comprised almost half of all federal
                         contract obligations made in 2015–2016.
                         57
                           Specifically, the electronic data we obtained do not contain sufficient information to
                         determine whether all judicial and administrative remedies for addressing these tax debts
                         had been exhausted or had lapsed at the time of the contract award. As mentioned, the
                         IRS data we obtained are a snapshot in time as of December 15, 2016. They provide
                         information on tax debts with a balance remaining as of the date of the data extract. Tax
                         debts that were paid in full prior to the data extract we obtained would not be included in
                         the data.
                         58
                           These debts were likely qualifying federal tax debt as of December 15, 2016, because
                         they were not being timely paid and appeared to be finally determined. We used criteria
                         used by the IRS to screen its own prospective contractors for compliance with the 2015
                         and 2016 appropriations acts.




                         Page 26                                                      GAO-19-243 Federal Contracting
                                        government. We describe characteristics of the unpaid taxes and contract
                                        awards for these 4,600 contractors with unpaid taxes below. (See fig. 4.)

Figure 4: Breakdown of Contractors with Unpaid Taxes at the Time of Award by Debt Status—Likely Qualifying or Not
Qualifying Federal Tax Debt—as of December 15, 2016




                                        Note: Numbers of contractors are generally rounded to the nearest 100, and amounts of unpaid taxes
                                        and awards received are rounded to the units indicated.




Contractors Owed Unpaid                 We identified over 4,600 federal contractors that had unpaid taxes at the
Taxes at the Time They                  time they received a contract award in 2015 and 2016. However, we
                                        could not confirm whether these contractors’ unpaid taxes met the
Received Contract Awards
                                        relevant legal definitions under § 52.209-11 and § 52.209-5 at the time of
                                        the contract award due to limitations in the data we obtained, as
                                        previously described. These 4,600 contractors received about $17 billion
                                        in contract awards and owed $1.8 billion in unpaid taxes as of December


                                        Page 27                                                         GAO-19-243 Federal Contracting
15, 2016. The characteristics of these 4,600 federal contractors with
unpaid taxes in December 15, 2016, are discussed below:

•    Average and Total Debt Associated with Contractors with Unpaid
     Taxes: About 1,000 contractors had unpaid taxes of at least $51,000
     each. These contractors collectively owed about 98 percent of the
     $1.8 billion in unpaid taxes we identified. About 1,900 contractors
     each had unpaid taxes between $3,500 and $51,000. They
     collectively owed about $30 million in taxes. About 1,700 contractors
     each had unpaid taxes over $100 but less than $3,500. 59 They
     collectively owed about $2 million in taxes.
•    Chief Financial Officers (CFO) Act Agencies Associated with
     Contractors with Unpaid Taxes: The 4,600 contractors with unpaid
     taxes as of December 15, 2016, received contract awards in our 2-
     year period from one or more of all 24 CFO Act agencies. 60 Almost
     1,500 contractors received contract awards from more than one
     agency. These contractors owed almost $600 million in unpaid taxes
     as of December 15, 2016 (see sidebar to the left). Although, as
     discussed above, we reviewed the control activities of five agencies,
     all executive-branch agencies are required by the FAR to consider the
     qualifying federal tax debt of prospective contractors before making
     an award. If a contractor is receiving awards from multiple federal
     agencies, the suspension and debarment determination of any
     agency SDO is relevant to other agencies considering the same
     contractor for an award. For example, as discussed earlier, we
     identified 1,849 contract awards by five selected agencies to
     contractors that reported qualifying tax debt before contract award,
     and none of these agency SDOs were notified. There were some
     instances where more than one agency made a contract award to the
     same contractor that reported having qualifying tax debts. These
     obligations might not have been made by multiple agencies if one of
     these agencies’ SDOs had been notified of the reported tax debt as
     required.



59
 The amount of $100 is defined by the IRS as a de minimis amount, below which any
amount is so small as to make accounting for it unreasonable or impractical.
60
  The Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15,
1990), established chief financial officers (CFO) to oversee financial management
activities at 23 major executive departments and agencies. The list now includes 24
entities, which are often referred to collectively as CFO Act agencies, and is codified, as
amended, in 31 U.S.C. § 901.




Page 28                                                     GAO-19-243 Federal Contracting
•     Contractors with Unpaid Taxes and Associated with TFRP: We
      also identified about 600 contractors whose tax records indicate the
      IRS assessed a TFRP to the owner or officers associated with the
      contractor, as shown in the sidebar to the left. As mentioned
      previously, a TFRP indicates willful failure to collect, account for, or
      pay certain taxes owed. These 600 contractors had $200 million in
      unpaid taxes in December 2016. Having a TFRP does not disqualify a
      contractor from obtaining a contract, but it can be considered when
      the agency determines a prospective contractor’s responsibility under
      the FAR, 61 according to agency contracting and suspension and
      debarment officials (SDO) we spoke with.




61
    FAR § 9.104-1.




Page 29                                            GAO-19-243 Federal Contracting
Over 2,700 Federal       We found that over 2,700 contractors owed about $350 million in unpaid
Contractors Likely Had   taxes that likely met the relevant legal criteria for qualifying federal tax
                         debt on December 15, 2016. However, few of those contractors reported
Qualifying Federal Tax
                         having qualifying tax debts in SAM. Because the contracts were awarded
Debt on December 15,     before December 2016, we cannot determine whether these unpaid taxes
2016, but Few Reported   met the relevant legal criteria under § 52.209-11 and § 52.209-5 for
Qualifying Tax Debt in   qualifying federal tax debt at the time of the contract award. 62 However,
SAM                      because these tax debts were unpaid as of December 15, 2016, we
                         determined they were likely qualifying tax debts because they were not
                         being timely paid consistent with a collection agreement and appeared to
                         be finally determined. 63 These tax debts amounted to about 20 percent of
                         the $1.8 billion in unpaid taxes we identified. The 2,700 contractors
                         received almost $5 billion of the $17 billion in federal contract obligations
                         for awards made to contractors with unpaid taxes.

                         We examined the SAM § 52.209-11 representations and § 52.209-5
                         certifications for these over 2,700 contractors to determine whether they
                         reported this debt as qualifying federal tax debt. We identified about 2,000
                         contractors that had completed a representation or certification, and,
                         when applicable, met the tax-debt threshold for § 52.209-5. Of those
                         2,000, 93 percent (1,848) did not report their debt as qualifying federal tax
                         debt, compared to fewer than 150 who did report qualifying federal tax
                         debt under one or both tax-debt provisions (see sidebar to the left). 64
                         Specifically:

                         •    Over 1,300 contractors completed the § 52.209-11 representation in
                              SAM (which took effect on Feb. 26, 2016), and less than two dozen of
                         62
                           The electronic data we obtained do not contain sufficient information to determine
                         whether all judicial and administrative remedies for addressing these tax debts had been
                         exhausted or had lapsed at the time of the contract award without a case-by-case, manual
                         review of contractor-specific data and documentation. As mentioned, the IRS data we
                         obtained represent a snapshot in time as of December 15, 2016. They provide information
                         on tax debts with a balance remaining as of the date of the data extract. Tax debts that
                         were paid in full prior to the data extract we obtained would not be included in the data.
                         63
                           We used criteria used by the IRS to screen its own prospective contractors for
                         compliance with the 2015 and 2016 appropriations acts.
                         64
                           Our analysis reviewed prospective contractors’ § 52.209-11 representations and §
                         52.209-5 certifications most recently before the contract award and includes the
                         affirmative and not affirmative responses to these representations and certifications. We
                         did not include all approximately 2,700 contractors in our analysis because some did not
                         have tax debt that met the debt threshold for § 52.209-5 and the others did not have to
                         respond to the § 52.209-11 representation because the requirement to respond went into
                         effect after they received awards.




                         Page 30                                                   GAO-19-243 Federal Contracting
                               these contractors reported having qualifying federal tax debt under §
                               52.209-11 before receiving contract awards.
                          •    Nearly 1,400 contractors completed the § 52.209-5 certification in
                               SAM and as of December 15, 2016, had unpaid taxes over the
                               certification threshold. 65 Fewer than 140 of these contractors reported
                               under § 52.209-5 that they had been notified of qualifying federal tax
                               debt above $3,500 before receiving a contract award.
                          The accuracy of contractors’ reported tax-debt status in SAM is critical to
                          federal agencies’ ability to identify reported qualifying federal tax debt
                          owed by prospective contractors. As described earlier, contracting officers
                          generally rely on the contractors’ representations and certifications in
                          SAM to identify qualifying federal tax debts. Contracting officers generally
                          cannot verify a contractor’s tax-debt status by obtaining taxpayer
                          information directly from the IRS without the contractor’s prior consent,
                          because federal tax law generally prohibits the IRS from disclosing
                          taxpayer data for this purpose. While contracting officers cannot
                          independently verify whether federal contractors accurately report
                          qualifying federal tax debt, any qualifying federal tax debt may be
                          available for levy by the IRS, as discussed further below.


About 1,900 Federal       We found that about 1,900 contractors had about $1.4 billion in unpaid
Contractors Owed Unpaid   taxes that did not meet the relevant criteria for qualifying federal tax debt
                          on December 15, 2016, a date after which their contracts were
Taxes That Were Not       awarded. 66 Specifically, these unpaid taxes were not finally determined or
Qualifying Federal Tax    were being paid in a timely manner consistent with a collection agreement
Debt as of December 15,   as of December 15, 2016. If the status of these debts was the same at
2016                      the time of contract award, then the contractors did not need to report
                          them during the contracting process and agencies were not required to
                          consider the debts before awarding the contract. Although we were able
                          to determine that these unpaid taxes did not meet the legal definitions of
                          qualifying federal tax debt as of December 15, 2016, we could not
                          determine whether this was also the case at the time of the contract
                          award. Federal agencies obligated $12 billion to these 1,900 contractors


                          65
                            The nearly 1,400 contractors with § 52.209-5 certifications overlap with the over 1,300
                          contractors with § 52.209-11 representations because contractors respond to both
                          representations and certifications.
                          66
                            Almost 300 of these contractors also collectively owed about $50 million in unpaid taxes
                          that likely were qualifying federal tax debt on December 15, 2016.




                          Page 31                                                    GAO-19-243 Federal Contracting
                       between 2015 and 2016, for awards made while the contractors owed
                       taxes. 67

                       Of these 1,900 contractors, about 1,400 owed $1.3 billion in unpaid taxes
                       that were not finally determined on December 15, 2016. 68 About 700
                       contractors owed $90 million in unpaid taxes that were being timely paid
                       consistent with a collection agreement in December 15, 2016, due to
                       installment agreements or offers-in-compromise accepted by the IRS.


                       Through its FPLP, the IRS identified for levy most contractors we found to
The IRS Identified     have likely qualifying federal tax debt, according to our analysis of IRS
Most Federal           data. 69 Specifically, of the over 2,700 executive-branch agency
                       contractors with likely qualifying federal tax debt as of December 15,
Contractors with       2016, discussed above, the IRS identified over 2,000 for levy through the
Unpaid Taxes for       FPLP, a program administered by Treasury’s Fiscal Service. 70 These
                       2,000 contractors collectively owed about $300 million of the roughly
Levy, but the FPLP     $350 million in likely qualifying federal tax debt. 71
Cannot
Comprehensively        According to IRS data, the FPLP did not identify almost 700 of the 2,700
                       contractors we found to have likely qualifying federal tax debt as of
Identify All Federal   December 15, 2016. These 700 contractors owed about $50 million in
Contractors for Levy   likely qualifying federal taxes. IRS officials responsible for the FPLP told
                       us that they would need to review these instances to determine whether

                       67
                         As mentioned, our analysis includes only contractors with unpaid taxes that were (1)
                       assessed before a new contract award during 2015 and 2016; (2) unpaid as of December
                       15, 2016; and (3) greater than $100 as of December 15, 2016.
                       68
                         By not finally determined, we mean the contractors’ administrative and judicial remedies
                       have not been exhausted or had lapsed, including collections suspended for investigations
                       or open bankruptcy proceedings.
                       69
                         Taxes that are being timely paid and or have not exhausted administrative and judicial
                       remedies are generally not eligible for levy. Consequently, we are treating qualifying
                       federal tax debt as taxes potentially eligible for levy.
                       70
                         By “identified” by the FPLP, we mean that the IRS had either levied their tax debt or
                       excluded it from being levied. This only reflects FPLP levies, and does not take into
                       account any amounts collected via levies outside of the FPLP, such as when revenue
                       officers seize payments from federal agencies to collect unpaid taxes.
                       71
                         These 2,000 contractors all had tax debt identified by the levy program, but, as of
                       December 15, 2016, only part of the $300 million tax debt owed by these contractors had
                       been identified by the levy program. Specifically, as of December 15, 2016, the FPLP had
                       identified about $220 million of the $300 million in unpaid taxes owed by these
                       contractors.




                       Page 32                                                    GAO-19-243 Federal Contracting
the contractors were eligible for levy as of December 15, 2016, and if so
why they were not identified by the FPLP. We plan to share these cases
with the IRS to determine whether the contractors were eligible for levy at
that time and take any appropriate enforcement action.

It is possible that the IRS did not identify these 700 contractors for levy
through the FPLP because the IRS did not have access to their
payments. The FPLP was developed as an automatic and efficient means
for the IRS to collect delinquent taxes as payments were processed
through the Fiscal Service. Accordingly, the FPLP can only levy federal
agency payments processed by the Fiscal Service, but not all federal
agencies process their payments through the Fiscal Service. As a result,
payments disbursed by other means—such as payments that agencies
make directly to contractors—are not included in the FPLP, although they
can be levied by the IRS through other manual methods 72 (see fig. 5).




72
  The IRS generally prefers to levy federal contractors through the FPLP, which is an
automated program that allows the IRS to collect tax debts through the Fiscal Service’s
Treasury Offset Program. However, the IRS can also levy agency payments to federal
contractors using traditional nonautomated methods. Specifically, the IRS can manually
levy an agency payment, which involves an IRS revenue officer directly contacting the
federal agency responsible for the payment to relinquish funds to satisfy a contractor’s tax
debt. Such a levy must be manually prepared and issued by a revenue officer.




Page 33                                                     GAO-19-243 Federal Contracting
Figure 5: IRS Process for Collecting Federal Contractors’ Delinquent Taxes through the Department of the Treasury’s Fiscal
Service FPLP and Other Manual Levy Methods




                                         a
                                          Agency payments not disbursed or administered by the Fiscal Service are not eligible for the FPLP
                                         and require a manual levy by the IRS.


                                         The IRS cannot readily identify which payments are made outside of the
                                         Fiscal Service, and such payments cannot be levied through the FPLP.
                                         While the IRS receives some information about contractor payments from
                                         agencies, it does not receive information that would allow it to



                                         Page 34                                                          GAO-19-243 Federal Contracting
comprehensively determine which payments are processed by the Fiscal
Service and can be levied through the FPLP and which payments are not
and must be levied manually. Specifically, executive-branch agencies,
including those that do and do not process payments through the Fiscal
Service, are required to report information to the IRS about some federal
contracts through the IRS Form 8596 information return. Reporting
agencies identify themselves on the Form 8596, and the IRS uses data
from this form to identify federal contractors for potential levy. 73 However,
the Form 8596 information return lacks information on whether payments
to federal contractors are processed by the Fiscal Service or through
some other means. Without visibility into the payments made outside the
Fiscal Service, the IRS is limited in its ability to identify nonparticipating
agencies for outreach about the efficiencies of leveraging the FPLP to
collect contractors’ unpaid taxes, as opposed to manual levies. 74 Further,
without information on agencies’ payment methods, the IRS cannot
quickly identify payments that must be levied through manual methods.
Expanding Form 8596 to include payment-method information could help
the IRS identify which agencies to target for outreach and avoid delays in
identifying contractor payments requiring manual levy. IRS officials told us
the IRS has the legal authority to expand Form 8596 reporting
requirements and would have to determine whether a change to add
information on Fiscal Service processing of agency payments was
warranted.

In addition, we found the IRS is missing an opportunity to further enhance
the FPLP levy process for certain contractor payments. Within the FPLP,
the IRS has an expedited process to levy federal contractors and, as
noted above, the IRS uses data from Form 8596 to identify federal




73
  Federal agencies also can elect to have the Federal Procurement Data Center report
payment information to the IRS on the agencies’ behalf if the agencies are already
submitting the required payment information to the Federal Procurement Data Center.
74
  The Treasury Inspector General for Tax Administration reported on this in 2017 and
recommended that the IRS work with the Fiscal Service to identify agencies that do not
participate in the FPLP and establish a process to add those agencies. In response, the
IRS agreed to discuss potential solutions to this issue with the Fiscal Service. See
Treasury Inspector General for Tax Administration, Delinquent Federal Contractors Are
Not Always Included in the Federal Payment Levy Program, TIGTA 2017-30-053 (Aug. 14,
2017).




Page 35                                                 GAO-19-243 Federal Contracting
              contractors for potential levy. 75 However, Form 8596 reporting
              requirements do not apply to federal contracts for which the amount
              obligated is $25,000 or less. 76 When Form 8596 reporting requirements
              were initially established, this threshold was consistent with Federal
              Procurement Data System (FPDS) contract reporting requirements for
              agencies at the time. However, subsequent FAR amendments revised the
              reporting threshold from contracts over $25,000 to contracts over the
              micropurchase amount, which is currently set at $10,000. Because the
              Form 8596 reporting threshold is higher than FPDS reporting
              requirements, information about contracts in the $10,000 to $25,000
              range is available in FPDS, but is not required to be shared with the IRS.
              Such information could help the IRS identify and use expedited levy
              procedures on federal contractors with contract obligations in the
              $10,000–$25,000 range. According to the IRS, an amendment to its
              regulations would be needed to align the Form 8596 reporting threshold
              with FPDS reporting requirements.

              Standards for Internal Control in the Federal Government state that
              management should use high-quality information to achieve the entity’s
              objectives. To do this, management obtains relevant data from reliable
              internal and external sources, processes the obtained data into high-
              quality information, and uses high-quality information to make informed
              decisions and evaluate the entity’s performance in achieving key
              objectives. Without additional information about and from the agencies
              making these payments, the IRS may be missing opportunities to identify
              federal contractors for levy to enhance tax collections.


              Considering prospective contractors’ reported qualifying federal tax
Conclusions   debt—in accordance with federal regulations—helps ensure federal
              agencies comply with federal appropriations law, supports the integrity of
              the contracting process, and protects the interests of the government.
              75
                 If the IRS identifies the taxpayer as a federal contractor, the IRS may issue any levy on
              the taxpayer prior to giving a Collection Due Process notice. The IRS generally must notify
              taxpayers of their right to a Collection Due Process hearing at least 30 days before the
              taxpayers can be levied, and up to 15 percent of payments can be levied. For federal
              contractors however, the IRS is permitted to levy payments before notifying them of their
              right to a hearing, and can levy as much as 100 percent of payments.
              76
                This information return is not required for contracts for which the amount obligated is
              $25,000 or less, for confidential or classified contracts, for contracts that provide for all
              payments to be made within 120 days following the date of the contract action if it is
              reasonable to expect that all amounts will be paid, and for certain other exceptions.




              Page 36                                                        GAO-19-243 Federal Contracting
                      The five federal agencies we reviewed had control activities, such as
                      policies, procedures, and training, to help ensure contracting officers
                      consider prospective contractors’ reported qualifying federal tax debt
                      before making an award. However, these controls were not always
                      effective in ensuring that potentially required actions were taken.
                      Determining the reasons the contracts we identified were awarded
                      without appropriate consideration of contractors’ reported qualifying
                      federal tax debt and taking additional steps to ensure tax debts are
                      appropriately considered in future contract award decisions is necessary
                      to ensure contracting opportunities are appropriately awarded. Improving
                      accessibility of SAM representation and certification data to allow
                      contracting officers to more easily identify and consider reported
                      qualifying federal tax debt before contract award can help contracting
                      officers meet required steps, such as referring them to the SDO.

                      Federal tax law generally prohibits the IRS from disclosing taxpayer data
                      to other federal agencies for the purpose of determining whether potential
                      contractors owe qualifying federal tax debt. Consequently, federal
                      agencies generally rely on contractors’ reported qualifying federal tax
                      debt to detect any tax debt owed by their potential contractors. However,
                      agencies cannot independently verify the accuracy of contractors’
                      reported qualifying federal tax debts when awarding contracts. This
                      limitation heightens the importance of the IRS’s levy process for
                      recouping revenue from businesses that have failed to pay their taxes in a
                      timely way but are receiving federal contract dollars, and the recoupment
                      of revenue can help reduce the tax gap. Accordingly, the IRS has
                      opportunities to use available data to improve its detection and collection
                      of qualifying federal tax debts owed by federal contractors, which can
                      help enhance revenue collection and compliance.


                      We are making 12 recommendations—two each to the Army, HHS, the
Recommendations for   Navy, and VA; one each to DOE and GSA; and two to the IRS.
Executive Action
                      The Senior Procurement Executive for the Department of the Army
                      should review the contracts we identified as being awarded to contractors
                      that reported qualifying federal tax debt under FAR § 52.209-11 and (1)
                      determine whether the contracting officer was required to consider the
                      contractor’s reported tax debt; if so, (2) determine the reasons controls to
                      identify and refer these contractors to the SDO before contract award did
                      not operate effectively; and (3) design or modify controls to help ensure
                      compliance with applicable regulations. (Recommendation 1)



                      Page 37                                          GAO-19-243 Federal Contracting
The Senior Procurement Executive for HHS should review the contracts
we identified as being awarded to contractors that reported qualifying
federal tax debt under FAR § 52.209-11 and (1) determine whether the
contracting officer was required to consider the contractor’s reported tax
debt; if so, (2) determine the reasons controls to identify and refer these
contractors to the SDO before contract award did not operate effectively;
and (3) design or modify controls to help ensure compliance with
applicable regulations. (Recommendation 2)

The Senior Procurement Executive for the Department of the Navy should
review the contracts we identified as being awarded to contractors that
reported qualifying federal tax debt under FAR § 52.209-11 and (1)
determine whether the contracting officer was required to consider the
contractor’s reported tax debt; if so, (2) determine the reasons controls to
identify and refer these contractors to the SDO before contract award did
not operate effectively; and (3) design or modify controls to help ensure
compliance with applicable regulations. (Recommendation 3)

The Senior Procurement Executive for VA should review the contracts we
identified as being awarded to contractors that reported qualifying federal
tax debt under FAR § 52.209-11 and (1) determine whether the
contracting officer was required to consider the contractor’s reported tax
debt; if so, (2) determine the reasons controls to identify and refer these
contractors to the SDO before contract award did not operate effectively;
and (3) design or modify controls to help ensure compliance with
applicable regulations. (Recommendation 4)

The Senior Procurement Executive for the Department of the Army
should review the contracts we identified as being awarded to contractors
that reported qualifying federal tax debt under FAR § 52.209-5.
Specifically, the Senior Procurement Executive should determine whether
each contract value was expected to exceed the simplified acquisition
threshold when the solicitation was issued and, if so, (1) determine the
reasons controls to identify and notify the SDO of these contractors
before contract award did not operate effectively and (2) design or modify
controls to help ensure compliance with applicable regulations.
(Recommendation 5)

The Senior Procurement Executive for DOE should review the contracts
we identified as being awarded to contractors that reported qualifying
federal tax debt under FAR § 52.209-5. Specifically, the Senior
Procurement Executive should determine whether each contract value
was expected to exceed the simplified acquisition threshold when the


Page 38                                          GAO-19-243 Federal Contracting
solicitation was issued and, if so, (1) determine the reasons controls to
identify and notify the SDO of these contractors before contract award did
not operate effectively and (2) design or modify controls to help ensure
compliance with applicable regulations. (Recommendation 6)

The Senior Procurement Executive for HHS should review the contracts
we identified as being awarded to contractors that reported qualifying
federal tax debt under FAR § 52.209-5. Specifically, the Senior
Procurement Executive should determine whether each contract value
was expected to exceed the simplified acquisition threshold when the
solicitation was issued and, if so, (1) determine the reasons controls to
identify and notify the SDO of these contractors before contract award did
not operate effectively and (2) design or modify controls to help ensure
compliance with applicable regulations. (Recommendation 7)

The Senior Procurement Executive for the Department of the Navy should
review the contracts we identified as being awarded to contractors that
reported qualifying federal tax debt under FAR § 52.209-5. Specifically,
the Senior Procurement Executive should determine whether each
contract value was expected to exceed the simplified acquisition
threshold when the solicitation was issued and, if so, (1) determine the
reasons controls to identify and notify the SDO of these contractors
before contract award did not operate effectively and (2) design or modify
controls to help ensure compliance with applicable regulations.
(Recommendation 8)

The Senior Procurement Executive for VA should review the contracts we
identified as being awarded to contractors that reported qualifying federal
tax debt under FAR § 52.209-5. Specifically, the Senior Procurement
Executive should determine whether each contract value was expected to
exceed the simplified acquisition threshold when the solicitation was
issued and, if so, (1) determine the reasons controls to identify and notify
the SDO of these contractors before contract award did not operate
effectively and (2) design or modify controls to help ensure compliance
with applicable regulations. (Recommendation 9)

The Administrator of GSA should coordinate with the appropriate SAM
users, such as agency procurement officials, to identify potential updates
to facilitate contracting officers’ identification of contractors that report
qualifying federal tax debt under the § 52.209-11 representation and §
52.209-5 certification. (Recommendation 10)




Page 39                                           GAO-19-243 Federal Contracting
                  The Commissioner of the IRS should evaluate options to identify which
                  contract payments federal agencies expect to be processed by the Fiscal
                  Service, including amending the reporting requirements for Form 8596 to
                  require federal agencies to include information about whether contractor
                  payments are expected to be processed by the Fiscal Service. If the IRS
                  amends Form 8596 reporting requirements, the IRS should (1)
                  systematically note this information on taxpayer accounts to help the IRS
                  identify which payments may be available for levy through the FPLP and
                  which payments may be available for other (i.e., manual) levies and (2)
                  analyze these data to help identify agencies that do not participate in the
                  FPLP and inform its efforts to expand the number of agencies
                  participating in the FPLP. (Recommendation 11)

                  The Commissioner of the IRS should evaluate options to obtain
                  comprehensive contract payment data above the existing FPDS-NG
                  reporting threshold of $10,000, including assessing the costs and benefits
                  of changing the current threshold for contracts that agencies are required
                  to report to the IRS through Form 8596 information returns to be
                  consistent with the existing reporting threshold for FPDS-NG, determine
                  whether regulatory revisions are necessary, and change the reporting
                  threshold, if appropriate. (Recommendation 12)


                  We provided a draft of this report to the Department of Defense (for the
Agency Comments   Army and Navy), HHS, VA, DOE, GSA, the IRS and the Office of
                  Management and Budget for review and comment. In written comments
                  (reproduced in appendixes II–VI), the Department of Defense, HHS, VA,
                  DOE, and GSA agreed with our recommendations. The IRS generally
                  agreed with our recommendations (see appendix VII). The Office of
                  Management and Budget had no comments. HHS and the Navy provided
                  technical comments, which we incorporated as appropriate.

                  The Department of Defense, HHS, VA, and DOE noted that they plan to
                  review the contract awards identified in our review. In addition, several
                  agencies described steps they will be taking to address our
                  recommendations. For example, the Department of Defense noted that it
                  plans to take corrective actions or add controls as necessary. HHS noted
                  that it will assess internal controls and take appropriate action. VA noted
                  that it will provide an action plan. DOE noted that it will design or modify
                  controls for regulatory compliance, if necessary. GSA noted that it will
                  work with the procurement community through established governance
                  channels to identify potential approaches for drawing contracting officers’
                  attention to qualifying federal tax-debt information reported in SAM. The


                  Page 40                                           GAO-19-243 Federal Contracting
IRS noted its commitment to obtaining accurate information on potential
levy sources and, accordingly, indicated it will review the benefits of
expanding the information included on its Form 8596, along with other
alternatives, to determine their feasibility, effectiveness, and relative
burden. The IRS further noted that it will review the potential benefits and
costs that would result from changing the current reporting threshold for
contract payments, and submit its findings to the Office of IRS Chief
Counsel to consider this addition to the IRS Priority Guidance Plan.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the appropriate
congressional committees, the Secretary of Health and Human Services,
the Secretary of Veterans Affairs, the Secretary of Defense, the Secretary
of the Navy, the Secretary of the Army, the Secretary of Energy, the
Administrator of GSA, the Commissioner of Internal Revenue, the
Director of the Office of Management and Budget, and other interested
parties. In addition, the report is available at no charge on the GAO
website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-6722 or shear@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made key contributions to this report
are listed in appendix VIII.




Rebecca Shea
Director
Forensic Audits and Investigative Service




Page 41                                           GAO-19-243 Federal Contracting
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              This report first examines the extent to which, in calendar years 2015 and
              2016, 1 (1) selected federal agencies had control activities that ensured
              contractors’ reported federal tax debts were considered before contract
              award. The remainder of the report assesses the same period; however,
              it focuses on all executive-branch agencies and examines the extent to
              which (2) federal contracts were awarded to contractors with federal tax
              debt, including the characteristics of those contracts and contractors, and
              (3) the Internal Revenue Service (IRS) identified selected federal
              contractors’ payments for levy.

              To identify the extent to which selected federal agencies had control
              activities that ensured contractors’ reported federal tax debts were
              considered before contract award (including task orders), 2 we analyzed
              contract obligation information from the Federal Procurement Data
              System–Next Generation (FPDS-NG) 3 and selected for our review the
              five agencies with the highest contract obligations associated with
              contract awards for 2015 and 2016, which is the period when contract
              award data were available at the time of our review. In addition, the
              revised FAR tax-debt provision went into effect during this period.
              Specifically, we selected the three civilian agencies with the highest
              obligations—the Departments of Energy (DOE), Health and Human
              Services (HHS), and Veterans Affairs (VA)—and, within the Department
              of Defense, the two agencies with the highest obligations—the
              Departments of the Army and Navy. 4 The results of our review of these
              five selected agencies are not generalizable to all federal agencies.
              However, these five selected agencies awarded about 51 percent of
              contract obligations associated with contract awards for 2015 and 2016,
              which were the most-recent contract award data available at the time of
              our review, and during this period the newest Federal Acquisition

              1
               All years are calendar years unless otherwise specified.
              2
               A task order is an order for services placed against an established contract or with
              government sources. The established contract is called a task order contract, which is a
              contract for services that does not procure or specify a firm quantity of services (other than
              a minimum or maximum quantity) and that provides for the issuance of orders for the
              performance of tasks during the period of the contract. For the purposes of our review, we
              use the term “contract award” to include task orders.
              3
               The FPDS-NG is the central repository for capturing information on federal procurement
              actions. Dollar amounts reported by federal agencies to FPDS-NG represent the net
              amount of funds obligated and deobligated as a result of procurement actions.
              4
               For this report, we use “the Army” and “the Navy” to refer to the Departments of the Army
              and Navy, respectively.




              Page 42                                                      GAO-19-243 Federal Contracting
Appendix I: Objectives, Scope, and
Methodology




Regulation (FAR) tax-debt provision was implemented. 5 We reviewed
selected agencies’ policies and procedures related to awarding contracts
to prospective contractors that report they owe certain tax debts and met
with agency officials to discuss how their agencies consider contractors’
reported federal tax debt before awarding a federal contract. Specifically,
we met with agency officials who supervise contracting officers, such as
the Head of Contracting Activity, 6 Director of Contracts, or other
contracting managers, policy and procurement officials, and suspension
and debarment officials from the selected agencies. Additionally, we
reviewed and analyzed applicable laws and regulations, as well as
applicable policies and procedures from DOE, HHS, VA, the Navy, and
the Army for considering contractors’ reported federal tax debt when
awarding federal contracts. 7 In addition, we interviewed staff from the
Office of Management and Budget’s Office of Federal Procurement Policy
and officials from the Interagency Suspension and Debarment
Committee, and the Civilian Agency Acquisition Council to obtain an




5
 At the time we initiated our review, the 2016 contract obligation data were the most
current data available. The FAR is the primary regulation used by all federal executive
agencies to acquire supplies and services with appropriated funds. FAR § 52.209-11
became effective on February 26, 2016, and § 52.209-5 has been in place since 2008.
Under FAR § 52.209-11, the prospective contractor represents whether it is a corporation
that has any unpaid federal tax liability that has been assessed, for which all judicial and
administrative remedies have been exhausted or have lapsed, and that is not being paid
in a timely manner pursuant to an agreement with the authority responsible for collecting
the tax liability. Under FAR § 52.209-5, the prospective contractor certifies whether it or
any of its principals have, within a 3-year period preceding the offer, been notified of any
delinquent federal taxes in an amount that exceeds $3,500 for which the liability remains
unsatisfied. Delinquent federal taxes under this provision are those where the tax liability
is finally determined and assessed, with no pending administrative or judicial challenge,
and all judicial appeal rights exhausted; and the taxpayer is delinquent in making
payment, unless enforced collection action is precluded. The taxpayer is not delinquent if
the taxpayer has entered into an installment agreement and is making timely payments in
compliance with the agreement terms.
6
 The Head of the Contracting Activity means the official who has overall responsibility for
managing the contracting activity, including the authority to approve contracts before
award when necessary and monitoring a process to report contract data to FPDS-NG in
coordination with the Senior Procurement Executive. The Senior Procurement Executive
is responsible for managing the direction of the agency’s procurement system, including
implementation of the agency’s unique procurement policies, regulations, and standards.
7
 We did not meet with agency officials or review policies and procedures from all
contracting offices within each agency.




Page 43                                                     GAO-19-243 Federal Contracting
Appendix I: Objectives, Scope, and
Methodology




understanding of how the law is implemented through the FAR. 8 We also
met with the General Services Administration (GSA) to obtain an
understanding of the System for Award Management (SAM), 9 including
the registration of prospective contractors and their reporting of certain
federal tax debt to the representation requirement of FAR § 52.209-11
and the certification of § 52.209-5.

As part of this work, we analyzed FPDS-NG contract award and SAM
contractor registration data to identify instances where contractors
reported having certain qualifying federal tax debt and received a contract
award (including task orders). Specifically, we electronically matched
FPDS-NG contract award data from 2015 and 2016 to the relevant
contractors’ SAM registration. We then analyzed the relevant contractors’
representations and certifications most recently updated in SAM before
the relevant contract award to identify all instances where contractors
reported that they had a federal tax debt as defined in FAR § 52.209-11
or § 52.209-5 within our time frame. From the resulting list, we identified
the contracts that selected agencies awarded to contractors that reported
these qualifying federal tax debts. In addition, we reviewed a
nongeneralizable sample of 15 contract awards selected from the five
selected agencies to provide illustrative examples of the extent to which
these agencies’ control activities ensured required actions were taken
before contract award. These 15 contract awards were selected based on
numerous criteria, including the prospective contractors’ (1) responses
under FAR § 52.209-11 or § 52.209-5 in SAM before the new contract

8
 The Office of Federal Procurement policy was established by Congress in 1974 to
provide overall direction for government-wide procurement policies, regulations, and
procedures, and to promote economy, efficiency, and effectiveness in acquisition
processes. The Interagency Suspension and Debarment Committee was created by, and
is responsible for monitoring the implementation of, Executive Order 12549, 51 Fed. Reg.
6370 (Feb. 18, 1986), which requires executive departments’ and agencies’ participation
in a system for debarment and suspension. The committee acts in a leadership role to
help agencies build and maintain the expertise necessary to protect the government’s
business interests from harm. The Civilian Agency Acquisition Council assists the
Administrator of the General Services Administration (GSA) in developing and maintaining
the FAR system by developing or reviewing all proposed changes to the FAR.
9
 SAM is the primary government repository for prospective federal awardee information
and the centralized government system for certain contracting, grant, and other
assistance-related processes. It includes data collected from prospective federal
awardees required for the conduct of business with the government; prospective
contractor-submitted annual representations and certifications in accordance with FAR
subpart 4.12; and identification of those parties excluded from receiving federal contracts,
certain subcontracts, and certain types of federal financial and nonfinancial assistance
and benefits.




Page 44                                                     GAO-19-243 Federal Contracting
Appendix I: Objectives, Scope, and
Methodology




award, 10 and (2) having tax debts as of December 15, 2016, that were not
in a repayment agreement with the IRS. 11 Further, when selecting
contract awards that had a § 52.209-5 certification, we considered only
contractors having at least $3,500 in tax debts as of December 15, 2016.

We identified the relevant contractor population and then considered the
following factors simultaneously to select the 15 case examples:

•    unique contractor Taxpayer Identification Number across selected
     agencies and departments,
•    agency contracting office locations,
•    the amount of tax debt owed by the prospective contractor,
•    the amount of award obligations, and
•    IRS assessment of a Trust Fund Recovery Penalty (TFRP). 12


We selected case examples that represent a variety of these factors. We
reviewed seven contract awards made to contractors that reported that
they had certain tax debts and eight contract awards made to contractors
that reported that they did not have certain tax debts as part of their §
52.209-11 representations and § 52.209-5 certifications in SAM. For
these 15 contract awards, we reviewed pre–contract award
documentation, which included tax debt–related representations and
certifications retrieved by the selected agencies from SAM, and copies of
historical tax transcripts and other records, such as revenue officers’
notes obtained from the IRS. For the case examples presented in this

10
  For the purpose of our review, contracts include task orders, definitized contracts,
purchase orders, and indefinite delivery, indefinite quantity base contracts.
11
  Our analysis of contractors in the IRS data includes only those with unpaid taxes that
were (1) assessed before a new contract award during 2015 and 2016; (2) unpaid as of
December 15, 2016; and (3) greater than $100 as of December 15, 2016. The amount of
$100 is defined by the IRS as a de minimis amount, below which any amount is so small
as to make accounting for it unreasonable or impractical.
12
  A TFRP indicates willful failure to collect, account for, or pay certain taxes owed.
Specifically, when a business willfully fails to collect, account for, or pay the taxes it is
legally required to withhold from its employees’ wages, such as Social Security or
individual income tax withholdings (what is commonly referred to as “trust fund taxes”), the
IRS assesses underpayment penalties against the business and may impose an
additional TFRP against the responsible officers. Thus, individuals within the business
(e.g., corporate officers) may be held personally liable for the withheld amount not
forwarded and they may be assessed a TFRP.




Page 45                                                     GAO-19-243 Federal Contracting
Appendix I: Objectives, Scope, and
Methodology




report, we rounded tax debt and contract obligation amounts, did not
identify the awarding agency, and did not meet with awarding agency
officials to discuss each contract award to protect sensitive taxpayer
information.

To determine the extent to which executive-branch agency contracts were
awarded in 2015 and 2016 to federal contractors with federal tax debt,
and characteristics of those contract awards and contractors, we
electronically matched data from FPDS-NG on contract awards (including
task orders) for all executive agencies with (1) data from SAM on
contractors’ representations and certifications of their tax debt, and (2)
data from the IRS on tax debts owed by these contractors. Specifically,
we used the Data Universal Numbering System number 13 to match data
from FPDS-NG with contractor registration data from SAM to obtain
additional information on these contractors, such as the contractors’
Taxpayer Identification Numbers and their representations and
certifications of tax debt. Using the contractor Taxpayer Identification
Number from SAM, we then matched our list of contractors with IRS data
to identify our population of contractors that received a contract award
and had unpaid federal tax debts. Our analysis included all of the
executive-branch agencies. Further, our analysis describes some of
characteristics of these debts, including the total amount of unpaid taxes,
whether the contractors had a TFRP, and whether or not contractors had
unpaid taxes that were timely paid or appeared to be finally determined,
as of December 15, 2016, which was the time of our data extract. We
also analyzed whether contractors that were assessed unpaid taxes in
the IRS data 14 reported having certain tax debts as part of their § 52.209-
11 representations and § 52.209-5 certifications in SAM. We reviewed the
most-recent § 52.209-11 representation and § 52.209-5 certification prior
to the relevant contract award. Our analysis may understate the
population of contractors with tax debt to the extent that contractors
repaid their tax debts before the timing of our data extract. Specifically,
our analysis does not include any contractors that may have owed federal
taxes at the time of a new contract award during this period, but that paid


13
  The Data Universal Numbering System number is a unique nine-digit identification
number assigned to prospective contractors by Dun & Bradstreet.
14
  Our analysis of contractors that were assessed unpaid taxes in the IRS data includes
only contractors with unpaid taxes that were (1) assessed before a new contract award
during 2015 and 2016; (2) unpaid as of December 15, 2016; and (3) greater than $100 as
of December 15, 2016.




Page 46                                                  GAO-19-243 Federal Contracting
Appendix I: Objectives, Scope, and
Methodology




or otherwise resolved their tax debts before December 15, 2016. 15
Additionally, our analysis focuses on contract awards made in 2015 and
2016, and not contract modifications made during this period. In 2015 and
2016, federal agencies obligated $400 billion in modifications to contracts
made in 2014 or earlier, almost half of all federal contract obligations in
this period. We identify contractors who potentially may have had federal
tax debt meeting the definitions of tax debt under FAR § 52.209-11 and §
52.209-5 before the contract award, but cannot verify whether that was
the case.

To determine the extent to which the IRS identified selected federal
contractors’ payments made for levy in 2015 and 2016, we identified the
population of contractors that owed taxes at the same time they received
a contract award during our period by matching FPDS-NG, SAM, and IRS
Unpaid Assessment data, as described above. 16 We then determined
whether the tax debt had ever been levied or blocked by the Federal
Payment Levy Program (FPLP) as of December 15, 2016, according to
IRS data. 17 We also interviewed IRS officials about levying federal
contractor payments and reviewed Internal Revenue Manual sections and
other relevant documents from the IRS.

We assessed the reliability of FPDS-NG, SAM, and IRS Unpaid
Assessment data by reviewing relevant documentation, interviewing
knowledgeable agency officials, and performing electronic testing to
determine the validity of specific data elements in the databases. We
determined that these databases were sufficiently reliable for the
purposes of our reporting objectives.


15
  The IRS data we obtained are a snapshot in time as of December 15, 2016. They
provide information on tax debts with a balance remaining as of the date of the data
extract. Tax debts that were paid in full prior to the data extract we obtained would not be
included in the data.
16
  A levy is a legal seizure of property (including payments) to satisfy a tax debt.
17
  In July 2000, the IRS, in conjunction with the Department of the Treasury, Bureau of the
Fiscal Service, started the FPLP, which is authorized by I.R.C. § 6331(h). Through the
FPLP, the IRS can collect overdue taxes through a continuous levy on certain federal
payments disbursed by the Bureau of the Fiscal Service. There are certain situations for
which contractors with tax debt can be excluded from the FPLP such as currently not
collectible hardship accounts, approved installment agreements, pending or approved
offers in compromise, and open bankruptcies or litigation. Further, IRS revenue officers
can exclude a contractor’s account from FPLP if they are working with the taxpayer to
resolve the tax debt.




Page 47                                                      GAO-19-243 Federal Contracting
Appendix II: Comments from the Department
             Appendix II: Comments from the Department
             of Defense



of Defense




             Page 48                                     GAO-19-243 Federal Contracting
Appendix II: Comments from the Department
of Defense




Page 49                                     GAO-19-243 Federal Contracting
Appendix II: Comments from the Department
of Defense




Page 50                                     GAO-19-243 Federal Contracting
Appendix III: Comments from the
             Appendix III: Comments from the Department
             of Health and Human Services



Department of Health and Human Services




             Page 51                                      GAO-19-243 Federal Contracting
Appendix III: Comments from the Department
of Health and Human Services




Page 52                                      GAO-19-243 Federal Contracting
Appendix IV: Comments from the
             Appendix IV: Comments from the Department
             of Veterans Affairs



Department of Veterans Affairs




             Page 53                                     GAO-19-243 Federal Contracting
Appendix IV: Comments from the Department
of Veterans Affairs




Page 54                                     GAO-19-243 Federal Contracting
Appendix V: Comments from the Department
             Appendix V: Comments from the Department
             of Energy



of Energy




             Page 55                                    GAO-19-243 Federal Contracting
Appendix V: Comments from the Department
of Energy




Page 56                                    GAO-19-243 Federal Contracting
Appendix VI: Comments from the General
             Appendix VI: Comments from the General
             Services Administration



Services Administration




             Page 57                                  GAO-19-243 Federal Contracting
Appendix VII: Comments from the Internal
              Appendix VII: Comments from the Internal
              Revenue Service



Revenue Service




              Page 58                                    GAO-19-243 Federal Contracting
Appendix VII: Comments from the Internal
Revenue Service




Page 59                                    GAO-19-243 Federal Contracting
Appendix VII: Comments from the Internal
Revenue Service




Page 60                                    GAO-19-243 Federal Contracting
Appendix VIII: GAO Contact and Staff
                  Appendix VIII: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Rebecca Shea, (202) 512-6722 or shear@gao.gov
GAO Contact
                  In additional to the individual named above, Jonathon Oldmixon
Staff             (Assistant Director), Gloria Proa (Analyst-in-Charge), Jennifer Felder, and
Acknowledgments   Albert Sim made significant contributions to this report. Also contributing
                  to this report were Scott Hiromoto, Barbara Lewis, Heather Miller, James
                  Murphy, and Elizabeth Wood.




(101695)
                  Page 61                                          GAO-19-243 Federal Contracting
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