Report: Tax Cheats Receive Stimulus Money

WASHINGTON -- Nearly 6 percent of contractors and grantees who received $24 billion in stimulus funds owed $757 million in back taxes, a new congressional report being released Tuesday reveals.

In all, $275 billion was allocated for contracts and grants, of which $200 billion was paid out as of March. A Government Accountability Office analysis reviewed 63,000 award winners, but extrapolated that if all 80,000 awardees were examined, about $29 billion would have been given to 4,500 awardees owing $909 million in back taxes.

As a result of the study, 15 cases have been sent to the IRS for review, a small fraction, but GAO cited the cases as potentially "abusive or "criminal activity."

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

On Tuesday, a Senate Homeland Security and Governmental Affairs subcommittee was holding a hearing on the report.

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

Sen. Carl Levin, D-Mich., chairman of the investigations subcommittee holding the hearing, said it's been known for years that a few federal contractors and grantees don't pay their taxes.

He said a program to recover funds from tax delinquents has been strengthened, and "the executive branch has made it clear" that nonpayment of tax can be grounds for denying a specific contract or barring a contractor from bidding on any contract. He added that the executive branch should "get on with it" and bar "the worst of the tax cheats from the contractor workforce."

"It is a matter of basic fairness that those who take government money should be required to pay their taxes like everyone else," said Sen. Tom Coburn of Oklahoma, the panel's top Republican. "That such a huge amount of the stimulus money went to known tax cheats should be a wakeup call for Congress.'"

Investigators concluded that a lot of the tax cheats -- about 35 percent of whose debts were incurred before 2003 -- escaped review because the money was disbursed at the state and local level.

Of the debts unpaid, 55 percent -- or $417 million -- were unpaid corporate taxes while 27 percent -- $207 million -- are unpaid payroll taxes. Another $133 million, or 18 percent, were other taxes.

Sen. Max Baucus, D-Mont., chairman of the Finance Committee, said every unpaid tax dollar was "added to our deficit or taken from future generations, so I will certainly use the conclusions from this report to look for new ways to ensure everyone pays their fair share."

For Republicans the report provided another way to criticize Obama's recovery package, which funneled $821 billion into the recession-hit economy beginning in February 2009.

"This shows how fundamentally flawed the failed stimulus has turned out to be when Washington jams through almost a trillion dollars in spending with little scrutiny," said Sen. Orrin Hatch of Utah, top Republican on the Senate Finance Committee.

Moira Mack, a spokeswoman for the Office of Management and Budget, which oversees the stimulus program, said her agency last year collected more than $100 million in tax debts and stepped up efforts to prevent tax delinquents from receiving federal contracts.

"Companies that want federal contracts are now required to certify whether they have a significant tax delinquency and that requirement is deterring tax delinquents from getting federal contracts," Mack said. "These efforts are consistent with the steps this administration has taken through the Recovery Act to provide an unprecedented level of accountability and transparency on behalf of the American taxpayer.

The Associated Press contributed to this report.