IRS Overlooks Vendors Who Don’t Pay Their Taxes

Seems IRS is all over we and thee if/when we don’t pay, but procedures seem to be a bit lax when it comes to vendors who IRS relies upon.

Our old friend, the Treasury Inspector General for Tax Administration (TIGTA) recently released a report noting that while most IRS vendors are on top of their tax obligations, 1,168 are not, owing Uncle Sam a combined federal tax debt of $589 million – more than enough to cover Obama’s latest extravagant vacation!

Prior to 2012, Federal law did not explicitly address a prohibition against the awarding of contracts to entities solely because they owed Federal taxes.  Congress took care of that, imposing upon the Treasury Department and the IRS the obligation to assure that its contracting officers complete checks for tax indebtedness as part of determination of contractor responsibility prior to contract award.

But apparently it didn’t take IRS long to run afoul of that requirement – the Revenooers do not continuously monitor the tax compliance of contractors after award, according to TIGTA.  Further, IRS does not make a specific, independent determination if nonprocurement vendors have adequate financial resources and a satisfactory record of integrity and business ethics or unpaid tax debts, and, therefore, IRS does not complete tax compliance checks on any nonprocurement vendors (i.e.- those doing business with IRS via a method other than contract, basic agreement, basic ordering agreement or blanket purchase agreement).

So what’s the bottom line on this IRS butt-kicking?  Quoth TIGTA:  “Vendor integrity controls could be improved.”

Ya’ think?

“TIGTA continues to believe that the IRS should establish procedures requiring periodic (annual) tax compliance checks for all contractors.”

Very nice.

And speaking of TIGTA, in its Semiannual Report to Congress, the department highlighted one of its “high profile” reports from the past year – which cited the fact that they caught IRS with its pants down in using “inappropriate criteria….to identify tax-exempt applications for review,” recommending, among other things:

  • IRS provide better documentation for the reasons why applications potentially involving political campaign intervention are chosen for review;
  • Develop and provide training to employees before each election cycle; and
  • Expeditiously resolve remaining political campaign intervention cases (some of which have been in process for three years).

But where is the hammer?  IRS agreed with some of TIGTA’s points, and proposed

alternative corrective actions for others.  And the beat goes on – finger pointing and embarrassing Congressional testimony with no results.

And so goes another year – Merry Christmas!

CONSULT YOUR TAX ADVISOR  – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He can be reached at 831-7288, welcomes comments at jquinn@ashleyquinncpas.com, and invites readers to consider his other commentary at  http://blog.nolo.com/taxes.

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