Thousands of Recovery Act Contract and Grant Recipients Owe Hundreds of Millions in Federal Taxes

A minimum of 3,700 American Recovery and Reinvestment Act contract and grant recipients owed an estimated $750 million in “known unpaid federal taxes” as of September 30, 2009, the Government Accountability Office (“GAO”) said in a report released on May 24, 2011.

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The American Recovery and Reinvestment Act enacted on February 17, 2009 (the “Recovery Act”), appropriated $275 billion to be distributed for federal contracts, grants and loans in an effort to stimulate U.S. economic activity.  As of March 25, 2011, $191 billion of this $275 billion had been paid out.  As part of ensuring the proper administration of the appropriated funds, the GAO was asked to conduct this study to determine if Recovery Act contract and grant recipients have unpaid federal taxes.  What the GAO study reveals is nothing short of astonishing.

According to the study, the 3,700 grant recipients received more than $24 billion in Recovery Act funds and represent approximately 5% of the contractors and grant recipients.  The delinquent parties include prime recipients, sub-recipients and vendors.  “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 GAO said.  “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,” the GAO added.  In addition, the GAO’s analysis does not include Recovery Act contract and grant recipients who are noncompliant with or not subject to Recovery Act reporting requirements.

The full report can be found at http://www.gao.gov/new.items/d11485.pdf .