Recovery Act: Thousands of Recovery Act Contract and Grant Recipients Owe Hundreds of Millions in Federal Taxes

This testimony discusses the results of our most recent report, which we are releasing today, on American Recovery and Reinvestment Act of 2009 (Recovery Act) contract and grant recipients that owe federal taxes. Collectively, individuals, businesses, and other entities owed the U.S. government about $330 billion in known unpaid taxes, including interest and penalties, as of September 30, 2010, according to the Internal Revenue Service (IRS). IRS enforcement of the nation's tax laws continues to be on our High-Risk List. The Recovery Act appropriated $275 billion to be distributed for federal contracts, grants, and loans. According to www.Recovery.gov (Recovery.gov) data on federal spending, as of March 25, 2011, about $191 billion of that amount had been paid out. As far back as 1992, we have said that Congress should consider whether tax compliance should be a prerequisite for receiving a federal contract. Federal law does not prohibit the awarding of contracts or grants to entities because they owe federal taxes and does not permit IRS to disclose taxpayer information, including unpaid federal taxes, to federal agencies unless the taxpayer consents. Because of the potential that some Recovery Act recipients also have unpaid federal taxes you asked us to investigate this issue. This statement is based on our most recent report regarding tax delinquent federal contractors and grantees. Our report and my statement address two issues: (1) the magnitude of known tax debt owed by Recovery Act contract and grant recipients; and (2) examples of Recovery Act contract and grant recipients who have known unpaid federal taxes. To determine, to the extent possible, the magnitude of known tax debt owed by Recovery Act contract and grant recipients, we identified contract and grant recipients from Recovery.gov and compared them to known tax debts as of September 30, 2009, from IRS.