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Pentagon fails to crack down on contractor tax cheats Original Source Link: (May no longer be active)    http://www.forbes.com/markets/commodities/newswire/2004/02/11/rtr1257468.html http://www.forbes.com/markets/commodities/newswire/2004/02/11/rtr1257468.html Pentagon fails to crack down on contractor tax cheats Reuters, 02.11.04, 7:56 PM ET WASHINGTON (Reuters) - The U.S. Internal Revenue Service and the Defense Department have failed to pursue aggressively an estimated $3 billion in back taxes owed by defense contractors at the end of fiscal 2002, congressional investigators said in a report released Wednesday. The Pentagon could have recouped at least $100 million the following year if it and the IRS did a good job of using tax levies on deadbeats, said the General Accounting Office, Congress's investigative and audit arm. By September 2003, the Defense Department had collected less than $1 million, or less than 1 percent of the total then outstanding, the report found. More than 27,000 contractors -- providing construction, catering, training, dentistry, janitorial and funeral services, among others -- owed about $3 billion, of which 78 percent was a year old, GAO said. Yet many delinquent contractors continued to receive government payments, said the top Republican and the top Democrat on the Senate's permanent subcommittee on investigations. The panel was to hold a hearing on the findings Thursday. "The Pentagon needs to start targeting more firepower on the management side on fraud and abuse in the system," said Sen. Norm Coleman, the Minnesota Republican who heads the subcommittee. Sen. Carl Levin of Michigan, the panel's ranking Democrat, said the IRS should use as a "first resort, not a last resort" its ability to levy up to 15 percent of each contract payment to offset a federal tax debt. Of the delinquent contractors, more than 25,600 were businesses that primarily owed the government unpaid payroll taxes, including sums withheld for employees' federal income taxes, Social Security and Medicare, the GAO said. The other 1,500 or so were mainly individuals who owed taxes on their business profits, it said. Copyright 2004, Reuters News Service

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