Rule change could bar tax delinquents from contracts

Unlike House legislation, new regulation does not require contracting officers to verify debt status.

Acquisition officials have approved a new rule that could prohibit companies with delinquent tax liability from winning contracts with the federal government.

Comment on this article in The Forum.Unlike a bill that passed the House last week, the rule does not require contracting officials to verify a company's assertions about its tax debts and does not make suspension or debarment mandatory.

The change to the Federal Acquisition Regulation, published Tuesday in the Federal Register, would require contractors to indicate whether they have been convicted over the past three years of violating any federal criminal tax law or failing to pay any tax. Contractors also would have to certify if they have been notified of an unresolved tax lien or any unsatisfied federal tax delinquency in excess of $3,000.

If a company admits that any of these conditions exist, the contracting officer can request additional information and documentation "in order to demonstrate the offeror's responsibility." Failure to provide such information could result in the company's suspension or debarment from federal contracts.

"A contractor's present responsibility to perform includes financial responsibility, as well as integrity," the notice stated. "The rule is not intended as a tool to collect taxes for the IRS, but to provide information to the contracting officer on issues that may affect the contractor's responsibility."

The rule change appears to place the burden of verifying a company's tax liability not on the contracting officer, but squarely on the shoulders of the contractor -- leaving open the possibility that some companies may simply fail to report such information.

That approach differs considerably with the Contracting and Tax Accountability Act, which passed the House on April 14.

Sponsored by Rep. Brad Ellsworth, D-Ind., the bill (H.R. 4881) would require firms to submit, along with their contract bid proposal, a form certifying that they do not have any "seriously delinquent tax debt." Contracting officers would then, for the first time, be required to verify the company's statement through an IRS database that tracks tax liens.

Ellsworth's bill also does not provide contracting officers with any discretion to request or review added information that could explain or justify a tax debt.

The bill defines "seriously delinquent tax debt" as an outstanding debt for which a notice of lien has been filed in public records and would not apply to contracts below the simplified acquisition threshold of $100,000.

An Ellsworth spokeswoman did not respond to requests for comments about the differences between the bill and the new FAR rule.

Neither Ellsworth's bill nor the FAR change would affect companies that are paying tax debts through an installment agreement or have requested a collection due process hearing.

For years, contractors have had to disclose if they had been charged or convicted of tax evasion. But, until the rule change, acquisition officials were not required to consider a contractor's tax delinquency unless the company was specifically debarred or suspended for specific actions, such as a conviction for tax evasion.

Both the regulatory and legislative changes were sparked by a number of reports from the Government Accountability Office, which found that thousands of federal contractors owed billions of dollars in unpaid federal taxes.

Studies by the Senate Homeland Security and Governmental Affairs Subcommittee on Investigations have found about $6.3 billion in unpaid taxes by civilian and Defense Department contractors. GAO has found similar figures.

The Contracting and Tax Accountability Act has been referred to the Senate Homeland Security and Governmental Affairs Committee, where an identical measure has been introduced by Sen. Barack Obama, D-Ill.

Also on Tuesday, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council agreed on an interim FAR rule change that would require small business subcontracting reports to be submitted using the Electronic Subcontracting Reporting System, rather than a pair of standard reporting forms.

A Web-based system managed by the Integrated Acquisition Environment, eSRS is intended to streamline the small business subcontracting program reporting process and provide agencies with data quickly and more effectively.