Federal contractors receive an estimated $377.5 billion in taxpayer funds, and now the IRS inspector general reports that the tax agency isn't bothering to complete tax checks and financial capability surveys before awarding contracts. According to a new report, the Treasury Inspector General for Tax Administration (TIGTA) reviewed 135 contractors with an award equal to at least $250,000. Fifteen percent (20) of those reviewed had delinquent tax liabilities totaling $5.2 million. And tax checks were not completed for seven of those 20 contractors.

In other words, 13 contractors still got awards despite being known to be delinquent.

From the report: 

TIGTA believes IRS contractors should be held accountable to the same tax compliance requirements as IRS employees.  If IRS employees fail to file accurate and timely income taxes, it can result in disciplinary action, and even loss of employment. Guidelines do not require IRS employees to complete tax checks or financial capability surveys at the time a contract is up for renewal.  Our analyses showed the IRS renewed the contracts for 17 contractors, of which six had delinquent tax liabilities that totaled over $943,000 at the time of the original award.  As of March 2009, the delinquent tax liabilities increased by more than 500 percent to approximately $4.9 million.

Despite this finding, the IRS disagrees with the Inspector General's recommendation to conduct annual tax checks on all contractors to identify subsequent tax delinquencies.

UPDATE: Michelle Eldridge of the IRS responds to my post by email, reproduced here:

It is important to recognize that IRS is the only agency of government that checks for tax delinquencies of contractors prior to awarding contracts.  IRS procurement officers routinely work with the IRS collection operation to follow up on these delinquencies, as needed. The IRS has fulfilled all of its obligations under the January 2010 Executive Order, and continues to work with the Office of Federal Procurement Policy on further improvements to the federal procurement process. TIGTA’s findings largely rest on 20 contractors who had $5.2 million in delinquent taxes.  In fact, 18 of these 20 contractors resolved their tax balances through routine and timely interactions with the IRS. Of the two remaining contractors, the current debt is $945,000 – an 82 percent reduction of the $5.2 million spotlighted by TIGTA. In these cases, the taxpayers have exercised their right to contest the amount due. Finally, the IRS strongly supports the idea that all contractors meet their tax responsibilities. And the IRS and Treasury have supported legislation that would expand the federal government’s ability to stop contractors with serious tax delinquencies from receiving contracts.  The IRS is strongly committed to improving its performance on tax checks and financial capability assessments. Our response to TIGTA reflects that.

Two interesting things about this. One: Why isn't any other government agency checking this, and why isn't it public information? And also, given that the sample of contractors they looked at did have delinquencies that would later be resolved, wouldn't there still be a larger problem with other contractors? Is this so frequent, that contractors are delinquent, that it's normal for them to resolve the delinquencies while receiving federal contracts? And further, does the public have access to the information regarding how they resolved it?