INVESTIGATION: Companies bask in big government contracts while owing millions in taxes

Published: Nov. 3, 2017 at 8:02 PM CDT|Updated: Nov. 8, 2017 at 9:52 PM CST
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Congressman Steve Cohen told Andy Wise he plans to propose and push a plan that will hold the...
Congressman Steve Cohen told Andy Wise he plans to propose and push a plan that will hold the government accountable for researching a company's tax status before awarding the contract. (Source: WMC Action News 5)

MEMPHIS, TN (WMC) - An IRS corporate tax collection mistake allowed companies saddled with tax liens to continue to score lucrative government contracts, according to a Raycom Media Investigative Unit investigation.

Through Freedom of Information Act records requests, the investigation found at least 125 companies that owe the IRS a total of more than $40 million in unpaid taxes. Yet they were still awarded huge federal government contracts. According to the records, the companies netted a total of nearly $134 million in contracts during the very years they piled up enough tax indebtedness to warrant IRS liens.

"It's just blatant disregard for taxpayer money," said U.S. Rep. John Kennedy, (R) Louisiana.

The records revealed the worst offender is the North American Management and Business Corporation in Arlington, Virginia. It carries tax liens of more than $5 million over four years, according to the records. Yet during that time, the communications company received more than $4.4 million in government contract revenue. The company's representatives did not respond to our request for comment.

Neither did Joseph Turner, the president of Universal Electronics, Inc. (UEI) in Nashville, Tennessee. The records showed it holds 11 government contracts worth $70,203.77. But it's saddled with IRS tax liens totaling $160,322.58. Neither Turner nor UEI will likely pay those taxes. Court records confirmed Turner and UEI filed for bankruptcy.

Two Arkansas companies made the list. Delta Sign & Neon in Pine Bluff was awarded a $12,528.87 contract with U.S. Department of Defense. Yet it owes the IRS $185,896.36 in unpaid taxes. Electronics and appliance dealer Sabra Technology in Malvern, Arkansas, enjoys a $21,985 with the Bureau of Prisons, as the IRS has ignored the company's tax lien of $5,376.67. Both companies' bosses never returned our messages.

"It's shocking because it's illegal," said U.S. Rep. Donald McEachin, (D) Virginia. "You cannot get federal contracts and have a federal tax indebtedness. That obviously begs the question: how is this happening?"

An August 14, 2017 audit by the Treasury Inspector General for Tax Administration revealed how it's happening. According to the audit, the IRS recently automated its Federal Payment Levy Program so that it would automatically and electronically collect delinquent taxes from government contractors. But the audit found more than 25 percent of the total accounts of federal contractors enrolled in the program "...were improperly excluded" from the automated system. The IRS failed to collect those contractors' unpaid taxes "...for more than one year," read the audit.

In response to the audit, Mary Beth Murphy, commissioner of the IRS's Small Business/Self-Employed Division, wrote a letter accepting responsibility for the mistake. In the letter and its accompanying corrective action plan, Murphy pledged " identify all the affected (accounts)" and that "...action is being taken to include them" in the collection program by February 15, 2018.

After presenting the results of our investigation to him, Tennessee U.S. Rep. Steve Cohen, (D) Memphis, pledged to draft a bill mandating tax lien checks on every company bidding for a federal government contract. "There would be a condition preceding to getting the contract to verify that you're not delinquent in paying your taxes, and that would be necessary addition before you could get the contract," Cohen said.

Cohen said the bill would likely not pass before the IRS's February deadline to fix its automated collection system.

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