TIGTA Report on Government Contractor Tax Delinquency

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In 2014 Congress passed the Consolidated and Further Continuing Appropriations Act prohibiting federal agencies from using appropriated funds to award a contract or grant to a corporation owing any amount of delinquent federal taxes unless it considered suspension or disbarment.  A regulation, which goes by the catchy name Federal Acquisition Regulation (FAR), provides definitions and further guidance regarding this requirement.  We care because this is an easy way for the IRS to collect money. 

This provision follows a host of state and federal provisions linking the receipt of government employment or benefits or services with fulfilling tax obligations.  Over the past quarter century many states have passed legislation tying the receipt or continuation of licenses to the payment of taxes.  Many of my clinic clients came because the state of Massachusetts revoked their driver’s license due to failure to pay their state taxes.  While the revocation of driver’s licenses has the most far reaching impact, states take professional licenses as well.

The federal government does not issue many licenses but it has the ability to exert similar type of pressure for tax delinquency.  In 1998, it passed Section 1203 of the Restructuring and Reform Act (RRA 98).  This off code provision requires IRS employees to timely file their taxes or be fired.  The timely filing provision of Section 1203 is one of the so called 10 deadly sins that cause removal from employment but is by far the most impactful.  I will provide some data on this below.  Section 1203 is not the only federal provision creating an impact for tax delinquency.  Revocation or denial of a passport, passed in 2015 is another example and one which Les wrote about recently.  There has also been a movement to check federal employees outside of the IRS for tax delinquency though not as vigorously as might occur given the benefit of federal employment.

On September 12, 2022, the Treasury Inspector for Tax Administration (TIGTA) published a report regarding payments to federal contractors and federal grantees with delinquent tax situations.  It makes sense to require contractors and grantees to pay their taxes just as it makes sense for employees to pay their taxes.  These entities are receiving a direct benefit from the federal government and in exchange should at least keep current on their tax obligations.  The report talks about the problem and the structure for the solution.


TIGTA found that:

Between October 2018 and December 2019, Federal agencies awarded 2.1 million Federal contracts and grants to more than 83,000 awardees. We identified 3,978 entities that received $32.9 billion in Federal awards while owing $891 million in delinquent Federal taxes. This included 3,040 contractors that received $10.2 billion in Federal contracts while owing $621.8 million in delinquent Federal taxes and 938 grantees that received $22.7 billion in Federal grants while owing $269.2 million in delinquent Federal taxes.

The results can be seen in the following chart:

The TIGTA report indicates that employment taxes constitute most of the unpaid taxes reflected in the chart.  This did not surprise me. This has long been a major collection problem for the IRS.  The TIGTA report cited to a Government Accountability Office report from 15 years ago discussing the problem.  TIGTA produced a chart breaking down the amount of delinquency and the type of entity (corporation or grantee) owing the taxes.  It’s hard for me to get too excited about the entities falling in the lowest category and maybe even the next one or two categories but the high dollar categories contain some large amounts of unpaid tax.

These entities have been self-reporting that they have no tax problems.  The disclosure laws prevent the IRS from affirmatively going to other government agencies and discussing tax delinquencies.  One might hope that the exception to the disclosure law provided by the ability of the IRS to file a notice of federal tax lien might put many of these liabilities into the public sphere but you could see from the TIGTA report I recently wrote about on NFTLs that the IRS does not always file NFTLs on large dollar delinquencies.

Congress appropriated $30 million to the IRS to create an “application through which entities could request from the IRS a certification that the entity did or did not owe seriously delinquent taxes.”  Federal agencies could then require that potential contractors or grantees go to the IRS and obtain and include the certification as part of their application process for the contract or the grant.  TIGTA recommended in the report that the IRS priorities the development of this application and the IRS agreed.  Seems like a simple solution and a way to collect taxes without having to assign scarce Revenue Officer resources chase entities for payment.  Of course, nothing is simple and there will necessarily be situations in which entities will be fighting over the delinquent taxes or glitches in information will occur but the basics of the system should provide a simple collection mechanism.  Read the TIGTA report if you want more details.  This is the type of TIGTA report where I feel like the public is getting its money’s worth.

I mentioned earlier that I would circle back to Section 1203.  This is an off code provision and not a section of the IRC.  Les and I, through Procedurally Taxing, have partnered with the Pittsburgh Tax Review to create a volume on tax procedure which will be published in 2023.  The volume will focus on RRA 98 which will be celebrating its 25th anniversary in that year.  I have written an article for that edition on Section 1203 and wanted to give a little preview of the statistics.  I am troubled by the aspect of Section 1203 that served as symbolic legislation to punish IRS employees and talk about that in the paper.  The legislation, however, was far from symbolic in its impact on IRS employees.  TIGTA puts out stats on Section 1203 in its semiannual reports, though the information is fairly cryptic.  The statistics show that since enactment, an overwhelming majority of removals and mitigations under Section 1203 have been for late returns (8) or willful understatement (9). Since 2001 (the first year TIGTA published data in a semiannual report), IRS employees have also been removed for civil rights/constructive violations (3), concealed work error (4), assault or battery (5), I.R.C./IRM/Reg violation-retaliation (6) and threat of audit for personal gain (10).

As the table below shows, the removals and mitigations for violations other than late returns (8) or willful understatement (9) are rare. Please note in the table, the years 2001 and 2022 have only one semiannual reports worth of data, and in 2010, 2011, and 2012 the data for deadly sin number 8 and 9 were combined by TIGTA.

Using delinquency to deny employment, or licenses or contracts makes sense as an easy and appropriate way for government entities to ensure that everyone pays their fair share of taxes and particularly those directly benefiting from the government.  The use of these mechanisms which deny basic privileges must be accompanied by a robust system that ensures protection of taxpayer rights.  If the government uses an alleged delinquency or failure to file to collect, it must have a system that immediately and appropriately responds to concerns raised by the impacted party.  I applaud the use of these mechanisms to collect but worry that our broken tax system lacks the ability to fulfill its part of necessary bargain when they are used.


  1. Kenneth H. Ryesky says

    Before I was collecting the money as an attorney for the IRS, my career as a Federal employee began as a GS-5 Procurement Agent for the Department of Defense (where I spent the money). From there I progressed to a Supervisory Procurement Agent/Contracting Officer until being kicked upstairs to a position of Procurement Analyst after having ruffled too many feathers in higher up places.

    When CAFCAA was first enacted, I wondered how the DoD would know which vendors were in fact delinquent in their taxes, given all of the other contractor “self-certification” failures on other issues, and given the tax information disclosure regime.

    The response to this TIGTA report by Robert Choi, the IRS’s Chief Privacy Officer, vindicated my concerns.

    {As Keith alludes, just as the people in Taxland refer to 26 C.F.R. as “Treas.Reg.,” the people in Procurementland refer to 48 C.F.R. as “FAR.”}.

  2. Anthony Rodriguez says

    The IRS has turned 1203 (b) 8 violations into a money making opportunity for management. Millions of taxpayer dollars are spent to “catch” employees who overpaid their taxes and claimed their refund after the due date. Employees are “investigated” by every level of management as to why they filed their refund claim late. After checking which employees are in the “Friends and Family List” those without any connection are fired. The process is lengthy and involves not only every management official but IRS Legal and HR, Labor Relations etc, everybody gets a piece of the pie. Even TIGTA reported on the seeming disparate consequences of late filing violations. The IRS Commissioner in a letter to Sen. Charles Grassley admitted the firing process for 1203 violations is subjective and up to local IRS management.
    Let’s see where the recently allotted $80 billion actually goes, more “make work” schemes for management or actual tax enforcement.

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