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Zurik: Federal contracts going to hundreds of companies that owe taxes

NEW ORLEANS (WVUE) -

If you think Washington is broken, our investigation may symbolize much of the problem. How else can you explain that companies owing the government millions in delinquent taxes are still getting paid money by the federal government?

"Somebody needs to be fired," says Sen. John Kennedy of Louisiana. " I guarantee you, if the president will go in there and fire a bunch of them, it will stop."

Our investigation has found hundreds of companies that owe the federal government money still win large contracts by - you guessed it - the federal government.

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"It's just blatant disregard for taxpayer money," Kennedy says. "It's just the attitude of 'it's not my money, it's too much trouble.'"

In 2011, the Internal Revenue Service slapped DTM Corporation in Silver Spring, Maryland with $5.2 million in tax liens. The IRS says they still owe the money.

But since receiving that tax lien, the U.S. Department of Defense has awarded DTM $137 million worth of contracts to provide guard services.

"If you're not paying your taxes as a company, you should not be getting anymore contracts -  simple," says David Williams of the DC-based Taxpayers Protection Alliance.

Williams calls a federal contract a privilege, not a right. "We want responsible companies to have federal contracts, not irresponsible," he says. "And the first sign of irresponsibility is not paying your taxes."

The IRS hit Surface Technologies Corporation with tax liens in 2009 and 2010 - all totaled, $5.3 million of unpaid taxes. Since then, the company has received $100 million worth of federal contracts, working on Navy ships.

"This should be easy for the federal government to determine who the good actors and the bad actors are - who the good contractors are, who the bad contractors are," Williams says.

Surface Technologies told us they are "in compliance with all requirements as to its contracts," and the tax liens "are being resolved in accordance with agreements with the Internal Revenue Service."

"There have to be repercussions for not paying your taxes, especially if you are a contractor, if you're getting taxpayer money," Williams insists. "And I guarantee you, the first time that a company is thrown off of their rolls of receiving a contract because they don't pay their taxes, they are going to pay their taxes. They are going to make it right. They know they can get away with this and that's a problem."

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Local CPA Patrick Lynch says awarding contracts to delinquent taxpayers gives them a huge advantage.

"That gives that contractor who doesn't pay those payroll taxes a lower cost structure than one who does," Lynch tells us. "Therefore he, that contractor, is at an advantage because each contract is awarded to the low bidder."

Of course, a company hurting for cash could go out of business, cut corners to save money or generally provide lesser-quality services.

"These contractors are providing space and aircraft parts to NASA, weapon components to the Department of Defense, disaster relief to the Homeland Security and services to the veterans," Lynch says.

The government has been aware of this for years.

A 2007 Government Accountability Office report found 64,000 contractors owed $7.7 billion in taxes. The report found these delinquent contractors owned sports teams, multimillion-dollar houses, airplanes, luxury vehicles, gambled hundreds of thousands of dollars while they failed to pay taxes.

The Department of Defense is the most blatant abuser, awarding tens of millions of dollars of contracts to delinquent taxpayers.

"It's not a question of the law," Sen. Kennedy says. "The law's on the books."

For many of these companies, government workers are simply ignoring the law that prevents any company who owes the IRS money, and is not in litigation, from receiving a contract.

"It's law; it's in the current appropriations bill," Kennedy tells us. "I sit on the appropriations committee; I can guarantee you, it will be in the next appropriations bill, too. President Obama issued an executive order in 2010, forbidding that. And you know what happened?  They ignored it."

According to Kennedy, the federal government faces a $20 trillion deficit. "All of this... Just waste of taxpayer money," he says. "It just adds up."

And while you may be paying your fair share of taxes, hundreds of companies that still owe the federal government billions of dollars still get a large share of your taxpayer money.

"Taxpayers are frustrated with the way Washington works and the way Washington doesn't work," Williams says. "And this is an example of that, is that people are punished day in and day out for not paying their taxes. But these companies aren't. People dread April 15th and pay on their taxes or the IRS will go after them. People just want the same set of rules applied to companies that are getting federal contracts, that are applied to them every day."

The Defense Department never responded to our request for comment.

On Feb. 2, we also reached out to the Department of Veterans Affairs, the agency handing out the second most contracts to delinquent taxpayers. But the VA Press Office claimed they never received our request; we determined the VA had posted incorrect contact information on its web site.

A VA spokesperson sent the following statement on March 21:

The Department of Veterans Affairs follows the Federal Acquisition Regulations (FAR) system. The FAR allows corporations with unpaid tax liabilities to be debarred and debarred contractors are ineligible to receive federal contracts. Corporations must certify to the government if there is an unsatisfied tax liability over $3,500. 

In the case of IMR Development Corporation and Laurels Medical Services, neither company disclosed unsatisfied tax liabilities over $3,500.  The contracting officers checked the System for Award Management (SAM) prior to contract award, and neither company was debarred or showed a debt flag.  In the case of MB Transportation Company, the award was actually made to MB Transportation Company, DBA MLB Transportation.  MB Transportation Company, DBA MLB Transportation did not disclose unsatisfied tax liabilities over $3,500.  The contracting officer checked the System for Award Management (SAM) prior to contract award, and the company was not debarred and did not show a debt flag.

Should the government determine that a corporation misrepresented its status, debarment proceedings could be pursued.

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