More Than 3,000 Recipients of Stimulus Funds Owe More Than $750 Million in Unpaid Taxes

The Government Accountability Office released a report today revealing that 5 percent of the 80,000 entities that received federal contracts and grants through the American Recovery and Reinvestment Act of 2009 have tax problems. From the GAO's summary: 

At least 3,700 Recovery Act contract and grant recipients--including prime recipients, subrecipients, and vendors--are estimated to owe more than $750 million in known unpaid federal taxes as of September 30, 2009, and received over $24 billion in Recovery Act funds.

This represented nearly 5 percent of the approximately 80,000 contractors and grant recipients in the data from www.Recovery.gov as of July 2010 that GAO reviewed.

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. The estimated amount of known unpaid federal taxes is likely understated because IRS databases do not include amounts owed by recipients who have not filed tax returns or understated their taxable income and for which IRS has not assessed tax amounts due. In addition, GAO's analysis does not include Recovery Act contract and grant recipients who are noncompliant with or not subject to Recovery Act reporting requirements.

GAO selected 15 Recovery Act recipients for further investigation. For the 15 cases, GAO found abusive or potentially criminal activity, i.e., recipients had failed to remit payroll taxes to IRS. Federal law requires employers to hold payroll tax money "in trust" before remitting it to IRS. Failure to remit payroll taxes can result in civil or criminal penalties under U.S. law.

Here's the breakdown contained in the full report: 

[C]orporate income taxes comprised $417 million, or about 55 percent, of the estimated $757 million of known unpaid federal taxes. Payroll taxes comprised $207 million, or about 27 percent, of the taxes owed by Recovery Act contract and grant recipients we reviewed. Unpaid payroll taxes included amounts that were withheld from employees' wages for federal income taxes, Social Security, and Medicare but not remitted to IRS, as well as the matching employer contributions for Social Security and Medicare. The remaining $133 million was from other unpaid taxes, including excise and unemployment taxes.

Read the full report. 

Picture of stimulus courtesy of Flickr user Daquella manera.