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Federal contractors and tax debt: many vendors owe a lot to IRS

He who pays the piper typically gets to call the tune.

It’s a well-worn saying, of course, referring to the natural tendency for someone who is paying for something to get results tailored to what he or she wants. This applies to organizations just as much as individuals.

But such a simple saying is not necessarily applied so easily to the field of tax administration. And so, in this post, we will take note of a recent report that found the IRS frequently uses contractors who are behind on their own federal taxes.

The report was recently issued by the Treasury Inspector General for Tax Administration (TIGTA). TIGTA concluded that about 7 percent of the vendors who are given business by the IRS have federal tax debt.

This tax-debt problem involves more than 1,000 IRS vendors. According to TIGTA, the overall amount of tax debt that they have comes to about $589 million.

With a finding like this, it is tempting to try to cast the IRS in a bad light. One would think the agency responsible for tax compliance would do a better job of practicing what it preaches.

But the issue goes well beyond the IRS. There are also many other contractors who work for the federal government who are behind on their own taxes.

We would also note, too, the irony inherent in TIGTA’s finding regarding the IRS’s use of contractors. After all, the IRS is known to closely scrutinize company decisions to classify workers as contractors rather than employees. And yet the IRS itself makes use of many contractors.

Source: The Wall Street Journal, "Some IRS Vendors Have Big Tax Debts," John D. McKinnon, Dec. 18, 2013

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