Government contractors owe $3 billion in unpaid taxes

Approximately $3 billion in unpaid taxes is owed by 27,000 government contractors, according to Pentagon records recently reviewed by Congress.

The U.S. General Accounting Office concluded that due to a 1997 law, which requires federal agencies to withhold 15 percent from payments to businesses with unpaid tax bills, the Defense Department should have been collecting at least $100 million in unpaid taxes each year. Over the past seven years, the department has instead collected only about $687,000.

One of the problems is that while many of the contractors, including construction companies owe hundreds of thousands of dollars in taxes, the government is still doing business with them. One such company is a construction firm that repaired hangars at military bases and was paid $2.8 million in 2002 while still owing over $700,000. The company is currently under investigation. Another construction company was paid $152,000 for doing work at military installations while it owed $150,000 in unpaid taxes. It has currently paid the IRS $70,000.

Congress’s investigation subcommittee has reviewed the records and questioned why contractors haven’t paid up. Internal Revenue Service officials say a tight budget and large workload have prevented the agency from pursuing the contractors.