[House Report 114-72]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 114-72
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CONTRACTING AND TAX ACCOUNTABILITY ACT OF 2015
_______
April 14, 2015.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Chaffetz, from the Committee on Oversight and Government Reform,
submitted the following
R E P O R T
[To accompany H.R. 1562]
[Including cost estimate of the Congressional Budget Office]
The Committee on Oversight and Government Reform, to whom
was referred the bill (H.R. 1562) to prohibit the awarding of a
contract or grant in excess of the simplified acquisition
threshold unless the prospective contractor or grantee
certifies in writing to the agency awarding the contract or
grant that the contractor or grantee has no seriously
delinquent tax debts, and for other purposes, having considered
the same, report favorably thereon without amendment and
recommend that the bill do pass.
CONTENTS
Page
Committee Statement and Views.................................... 2
Section-by-Section............................................... 5
Explanation of Amendments........................................ 7
Committee Consideration.......................................... 7
Roll Call Votes.................................................. 7
Application of Law to the Legislative Branch..................... 7
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 8
Statement of General Performance Goals and Objectives............ 8
Duplication of Federal Programs.................................. 8
Disclosure of Directed Rule Makings.............................. 8
Federal Advisory Committee Act................................... 8
Unfunded Mandate Statement....................................... 8
Earmark Identification........................................... 8
Committee Estimate............................................... 9
Budget Authority and Congressional Budget Office Cost Estimate... 9
Committee Statement and Views
PURPOSE AND SUMMARY
The Contracting and Tax Accountability Act of 2015 (H.R.
1562) is designed to increase tax compliance by federal
contractors and grantees. The federal government spends $1
trillion on contracts and grants annually (in FY 2014, $444
billion in contracts and $591 in grants).\1\ It is important to
ensure that the federal contracts and grants, funded by the
taxpayer, are only awarded to responsible businesses and
individuals.
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\1\USASPENDING (April 8, 2015).
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The bill would require any agency that issues a
solicitation or that offers a grant in an amount greater than
the simplified acquisition threshold (currently $150,000) to
require each person submitting a proposal to: (1) certify that
such person does not have a seriously delinquent tax debt; and
(2) authorize the Secretary of Treasury to disclose information
limited to describing whether such person has a seriously
delinquent tax debt. Self-certification of a seriously
delinquent tax debt or a finding by the agency that the
contractor has misrepresented its tax status would be
considered definitive proof that a contractor is not a
responsible party (41 U.S.C. 113) or, in the case of a grantee,
is a high risk grant applicant--meaning a contractor is not
eligible for new contracts and a grantee is subject to special
oversight attention.
If a contractor or grantee is found to have a seriously
delinquent tax debt (whether identified by self-certification
or by Treasury verification), the bill requires agencies to
initiate suspension or debarment proceedings.\2\ The agency may
exercise a waiver to stop such proceedings, if the agency makes
a written finding of ``urgent and compelling circumstances
significantly affecting the interests of the United States.'' A
report on the exercise of this waiver authority must be
provided to Congress within 30 days of exercising the waiver.
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\2\For suspension and debarments proceedings, contractors would be
subject to proceedings under Federal Acquisition Regulation (FAR) 9.4
and grantees would be subject to such proceedings under 2 CFR Chap. 1,
Part 180, Subparts G and H (and as these rules may be further revised).
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The term ``seriously delinquent tax debt'' is defined in
the bill as ``a Federal tax liability that has been assessed by
the Secretary of the Treasury under the Internal Revenue Code
of 1986 and may be collected by the Secretary by levy or by a
proceeding in court.''\3\ The definition does not include
certain tax debts where: (1) tax debts are being paid in a
timely manner under an approved installment agreement or offer
and compromise agreement with the IRS; (2) there is a
collection due process hearing requested or pending, or where
the taxpayer has received debt relief because the debt is not
attributable to the taxpayer because, for example, they are an
innocent spouse; (3) a debt subject to continuous levy has been
issued (i.e. that debt is being collected by levy); and (4) a
debt has been released because the Secretary has determined
that levy is creating an economic hardship due to the financial
condition of the taxpayer.
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\3\The Federal Acquisition Regulation at 9.406-2(b)(1) includes a
definition of delinquent federal taxes as an amount that exceeds $3,000
and notes the point at which such taxes are considered delinquent to be
when the tax liability is (1) ``finally determined'' and (2) when the
taxpayer is delinquent in making payments. The Committee does not
consider this definition inconsistent with the definition in the bill.
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The Committee notes that with respect to the definition of
``seriously delinquent tax debt,'' in practice the IRS does not
typically issue a notice of lien unless the debt exceeds
$10,000. Thus, in practice, this definition would cover debts
of $10,000 or more.
The bill also defines the term ``Executive Agency'' by
referencing 41 U.S.C. 133. This definition in the code is a
broad definition covering the Department of Defense. This
definition is important because it makes clear this bill would
have government-wide application.
BACKGROUND AND NEED FOR LEGISLATION
The Government Accountability Office (GAO) has repeatedly
found thousands of government contractors had substantial
amounts of unpaid federal taxes. Specifically, GAO has
reported:
Over 30,000 Medicaid providers paid during
FY 2006 owed over $1 billion in unpaid federal taxes.
GAO-08-17 (2007).
Tens of thousands of recipients of federal
grant and direct assistance programs collectively owed
$790 million in federal taxes (as of September 2006).
GAO-08-31 (2007).
Approximately 27,000 defense contractors,
33,000 civilian agency contractors, and 3,800 General
Services Administration contractors owed about $3
billion, $3.3 billion, and $1.4 billion in unpaid
taxes, respectively. GAO-07-742T (2007).
Over 27,000 Medicare providers paid during
the calendar year 2006 owed over $2 billion in federal
taxes. Most of the unpaid taxes owed by the providers
were payroll taxes that are used to fund the Medicare
program. GAO-08-618 (2008).
At least 3,700 Recovery Act contract and
grant recipients owed more than $750 million in known
unpaid federal taxes while receiving over $24 billion
in Recovery Act funds. GAO-11-485 (2011).
Over 83,000 DOD employees and contractors
who held or were eligible for national security
clearances had unpaid tax debt totaling more than $712
million as of 2012. Note: About 40 percent of the
83,000 had a repayment plan for their debt. GAO-14-686R
(2014).
GAO's findings, over an extended period of time, indicate
contractor tax compliance remains a significant problem.
Contractors, like other taxpayers, must pay their fair share.
Failure to pay federal taxes by some contractors also puts
those contractors who do pay their fair share of taxes at a
competitive disadvantage.
In response to the GAO reports and Congressional attention,
the Federal Acquisition Regulation (FAR) was revised in April
2008. The revised FAR rule required that for any contracts over
the simplified acquisition threshold (currently $150,000), (1)
offerors would have to certify tax delinquency status; and (2)
where an offeror indicates the existence of ``an indictment,
charge, conviction, or civil judgment or Federal tax
delinquency in an amount that exceeds $3,000'' an agency
suspension and debarment official is notified.\4\ This bill is
intended to codify existing FAR provisions and provide
authority to Treasury in order to verify the contractors' self-
certification.
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\4\FAR Part 9.104-5 Certification regarding Responsibility Matters.
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In January 2010, the Administration reacted by publishing a
memo pushing for greater tax compliance by tasking the
Commissioner for the Internal Revenue Service to conduct a
review of self certifications submitted pursuant to the 2008
FAR revision. The President, in announcing this effort said,
``by issuing this directive, all of us in Washington will be
required to be more responsible stewards of your tax dollars''
and added that paying taxes is ``a fundamental responsibility
of citizenship'' and that the steps he was taking to improve
tax compliance were just ``common sense.''\5\
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\5\President Obama Directs Administration to Crack Down on Tax
Cheats Seeking Government Contracts, January 20, 2010. https://
www.whitehouse.gov/the-press-office/president-obama-directs-
administration-crack-down-tax-cheats-seeking-government-con. Memorandum
for Heads of Executive Departments and Agencies, January 20, 2010.
https://www.whitehouse.gov/the-press-office/memorandum-heads-executive-
departments-and-agencies-1
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In response to GAO reports and related developments,
Congress also enacted several general provisions in
appropriation acts.\6\ The purpose of these general provisions
was to improve contractor tax compliance. The goal of this bill
is to apply a government-wide standard for improving contractor
tax compliance.
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\6\See Legislative History section for description of these General
Provisions. Other developments include press reports, such as a 2012
report that two owners of one of the largest U.S. contractors operating
in Afghanistan owed more than $4 million in unpaid Federal taxes.
http://usatoday30.usatoday.com/news/washington/story/2012-04-15/carper-
lionie-industries-taxes/54302070/1
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LEGISLATIVE HISTORY
On March 24, 2015, Chairman Jason Chaffetz (R-UT)
introduced the Contracting and Tax Accountability Act of 2015
(H.R. 1562). Congresswoman Jackie Speier (D-CA) is an original
cosponsor. The bill was referred to the Committee on Oversight
and Government Reform and on March 25, 2015, the Committee
ordered H.R. 1562 to be favorably reported by a voice vote. The
Subcommittee on Government Operations held a hearing to discuss
contractor and federal employee tax compliance on March 18,
2015.
In past Congresses, similar bills and amendments to
appropriations bills seeking to improve contractors and
grantees' tax compliance have been considered.
In the 113th Congress, Chairman Chaffetz introduced H.R.
882 on February 28, 2013.\7\ On April 12, 2013, H.R. 882 was
ordered favorably reported by the Committee on Oversight and
Government Reform.\8\ On April 15, 2013, H.R. 882 was approved
by the House under suspension of the rules by a vote of 407-0.
Senator Claire McCaskill (D-MO) introduced a similar bill in
the Senate (S. 2247) on April 10, 2014. No further action was
taken on these bills in the 113th Congress.
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\7\H.R. 882 is almost identical to H.R. 1562.
\8\H. Rept. 113-35.
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In the 112th Congress, an identical version of H.R. 882,
H.R. 829, was ordered favorably reported by the Committee on
Oversight and Government Reform on April 13, 2011. In the 111th
Congress, Congressman Brad Ellsworth (D-IN) introduced a
similar bill, H.R. 572, and Senator McCaskill introduced S.
265. Similar measures were also introduced in the 110th
Congress by Congressman Ellsworth (D-IN) (H.R. 1986, H.R.
4881). In the Senate, S. 2519 was introduced by then-Senator
Barack Obama (D-IL).
Several appropriations bills over the last several years
have included general provisions to address federal contactors'
tax compliance. In the FY2012 Consolidated Appropriations Act
(P.L. 112-74), there were at least five general provisions in
different parts of the Act to address tax compliance for
Federal contractors. Generally, these provisions prohibited
contracting with entities that had unpaid tax debts unless the
covered agency suspension and debarment official had reviewed
the case and determined suspension and debarment were not
necessary to protect the government's interest. The language
was sometimes slightly different in these provisions.
In the FY2015 Consolidated and Continuing Appropriations
Act (P.L. 113-235), there were at least two general provisions
on contractor tax compliance. In the general government section
of Division E, Section 744 took a government-wide approach to
contractor tax compliance. In some ways, Section 744 took a
broader approach than H.R. 1562 by applying its requirements
beyond contracting and grants to include cooperative
agreements, loans or loan guarantees, or memorandum of
understanding. Section 744 language was generally consistent
with the language of past general provisions, which prohibits
the above mentioned transactions with entities that had unpaid
tax liabilities, where the agency is aware of unpaid tax
liability, unless the suspension and debarment official has
reviewed the case and determined further action is not
necessary to protect the interests of the government.\9\
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\9\Section 744 of P.L. 113-235 also includes the words, ``none of
the funds made available by this or any other act,'' indicating
permanence and an authorization on an appropriations law.
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The second general provision in FY2015 to address
contractor tax compliance appears in Division B (covering
Commerce, Justice, State appropriations). This general
provision (Section 523) has different certification
requirements and triggers from other general provisions in
appropriations acts. For example, it covers only those
contracts and grants over $500,000 and the certification
includes a requirement to certify no criminal offense
conviction under the Internal Revenue Code of 1986 over the
last three years. Given multiple general provisions and varying
language, the Committee expects that H.R. 1562 will mitigate
any confusion in these general provisions and other provisions
of law.
Section-by-Section
Section 1. Short title
Contracting and Tax Accountability Act of 2015.
Section 2. Purpose
This section makes clear that no government contracts or
grants shall be awarded to individuals or companies with
seriously delinquent federal tax debt.
Section 3. Disclosure and evaluation of contract offers from delinquent
federal debtors
This section requires contractors when submitting a
proposal: (1) to certify they do not have seriously delinquent
tax debt (as defined in Sec. 5(3)); and (2) to authorize the
Secretary of Treasury to disclose to the head of the agency
information limited to determining whether the contractor has
seriously delinquent tax debt. This certification applies to
contracts valued over the simplified acquisition threshold
($150,000).
If by self-certification or the agency finds the contractor
has seriously delinquent tax debt, this will be definitive
proof that the contractor is not a ``responsible source,''
meaning they are not eligible for new contracts with the
federal government. The term ``responsible source'' is a term
of art defined in law (41 U.S.C. 113). Contractors must be
``responsible'' in order to contract with the federal
government.
Next, this section provides that upon finding there is a
seriously delinquent tax debt, the head of the agency must
``shall initiate a suspension or debarment proceeding'' under
the rules of the FAR against the contractor. However, the head
of the agency may waive the requirement to initiate a
suspension or debarment proceeding. The waiver authority may be
exercised, if the agency head provides a written finding of
``urgent and compelling circumstances significantly affecting
the interests of the United States.'' The agency must also
submit to Congress a report within 30 days after the waiver is
made. The report must contain the rationale and information
supporting the waiver.
Finally, no later than 270 days after enactment the FAR
must be revised to reflect the requirements of this section.
Section 4. Disclosure and evaluation of grant applications from
delinquent federal debtors
This section covers grants and largely provides for the
same processes as in Section 3. The language directs agencies
offering grants (in excess of the simplified acquisition
threshold) to require grant applicants to certify their tax
status when submitting grant applications. If the grant
applicant does have a seriously delinquent tax debt, this is
definitive proof the grant applicant will be considered ``high
risk'' (which is a term of art for grants). If the applicant is
``high risk'' and if the applicant is awarded the grant, the
agency must take appropriate measures under Office of
Management and Budget (OMB) guidelines for enhanced oversight
of high-risk grantees. If the grant applicant is found ``high
risk,'' the head of the agency is required to initiate
suspension or debarment proceedings against the grant applicant
(2 CFR Subtitle A, Part 180 Subpart G & H).
Like the contracts provision, there is also waiver
authority to stop the referral to initiate suspension or
debarment proceedings. The waiver authority may be used if the
agency provides a written determination that there are ``urgent
and compelling circumstances significantly affecting the
interests of the United States.'' Then, within 30 days after
the waiver is made, the agency must submit a report with the
written determination and other supporting information.
Finally, OMB is directed to revise OMB guidelines to reflect
the requirements of this bill.
Section 5. Definitions and special rules
This section provides definitions for terms. The definition
of ``person'' includes an individual, a partnership, and a
corporation. A ``partnership'' would be treated as a person
with seriously delinquent tax debt when the partnership has a
partner who holds an ownership interest of 50% or more in the
partnership and has the seriously delinquent tax debt. A
``corporation'' would be treated as a person with seriously
delinquent tax debt when the corporation has an officer or
shareholder who holds 50% or more or a controlling interest
that is less than 50 percent of the outstanding shares of
corporate stock in that corporation. The definition of
``executive agency'' includes all executive agencies, military
departments, independent agencies, and government corporations
(5 U.S.C. 133).
The definition of ``seriously delinquent tax debt'' means a
federal tax liability that has been assessed by the Secretary
of Treasury under the Internal Revenue Code of 1986 and may be
collected by the Secretary by levy or by a proceeding in court.
There are several exceptions to the term seriously
delinquent tax debt to ensure the bill does not cover certain
types of debt. For example, the definition ``seriously
delinquent tax debt'' does not cover debt where: (1) the person
has entered into an installment plan agreement or an offer and
compromise agreement with the IRS and is making timely
payments; (2) there is a collection due process hearing
requested or pending, or where the taxpayer has received debt
relief because they proved the debt is not attributable to them
under, for example, the innocent spouse theory; (3) a debt
subject to continuous levy has been issued (i.e. that debt is
being collected by levy); and (4) a debt has been released
because the Secretary has determined that levy is creating an
economic hardship due to the financial condition of the
taxpayer.
Section 6. Effective date
This section provides the effective date of the bill as 270
days after enactment.
Explanation of Amendments
No amendments were offered during Full Committee
consideration of the bill.
Committee Consideration
On March 25, 2015, the Committee met in open session and
ordered reported favorably the bill, H.R. 1562, by voice vote,
a quorum being present.
Roll Call Votes
There were no recorded votes during Full Committee
consideration of the bill.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch where the bill relates to the terms and conditions of
employment or access to public services and accommodations.
This bill prohibits the awarding of a contract or grant in
excess of the simplified acquisition threshold unless the
prospective contractor or grantee certifies in writing to the
agency awarding the contract or grant that the contractor or
grantee has no seriously delinquent tax debts. As such, this
bill does not relate to employment or access to public services
and accommodations.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
(2)(b)(1) of rule X of the Rules of the House of
Representatives, the Committee's oversight findings and
recommendations are reflected in the descriptive portions of
this report.
Statement of General Performance Goals and Objectives
In accordance with clause 3(c)(4) of rule XIII of the Rules
of the House of Representatives, the Committee's performance
goal or objective of the bill is to prohibit the awarding of a
contract or grant in excess of the simplified acquisition
threshold unless the prospective contractor or grantee
certifies in writing to the agency awarding the contract or
grant that the contractor or grantee has no seriously
delinquent tax debts.
Duplication of Federal Programs
No provision of this bill establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
Section 3(e) of the bill requires the Federal Acquisition
Regulation to be revised not later than 270 days after
enactment. Section 4(e) requires the Office of Management and
Budget to revise applicable regulations as necessary to
incorporate the requirements of Section 4, not later than 270
days after enactment.
Federal Advisory Committee Act
The Committee finds that the legislation does not establish
or authorize the establishment of an advisory committee within
the definition of 5 U.S.C. App., Section 5(b).
Unfunded Mandate Statement
Section 423 of the Congressional Budget and Impoundment
Control Act (as amended by Section 101(a)(2) of the Unfunded
Mandate Reform Act, P.L. 104-4) requires a statement as to
whether the provisions of the reported include unfunded
mandates. In compliance with this requirement the Committee has
received a letter from the Congressional Budget Office included
herein.
Earmark Identification
This bill does not include any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Committee Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs that would be incurred in carrying out
this bill. However, clause 3(d)(2)(B) of that rule provides
that this requirement does not apply when the Committee has
included in its report a timely submitted cost estimate of the
bill prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974.
Budget Authority and Congressional Budget Office Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause (3)(c)(3) of rule XIII of the Rules
of the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has received
the following cost estimate for this bill from the Director of
Congressional Budget Office:
H.R. 1562--Contracting and Tax Accountability Act of 2015
H.R. 1562 would prohibit federal agencies from awarding
contracts or grants to persons or companies that have seriously
delinquent tax debt. The legislation defines seriously
delinquent tax debt to the federal government as Internal
Revenue Service (IRS) assessments that may be collected by levy
or through a court proceeding. Tax debt that is being paid in a
timely manner, or is part of a requested or pending collection-
due-process hearing, would not be considered seriously
delinquent. Under the bill, certain contractors and grantees
that receive federal funds would have to certify that they do
not have such tax debt, and the IRS would be authorized to
confirm or refute those claims on behalf of the federal
agencies involved.
Based on information from the Office of Management and
Budget, the IRS, and the staff of the Joint Committee on
Taxation (JCT), CBO estimates that implementing H.R. 1562 would
increase federal administrative costs by less than $500,000
annually, assuming the availability of appropriated funds. The
bill would affect direct spending by agencies not funded
through annual appropriations; therefore, pay-as-you-go
procedures apply. CBO estimates that any net increase in direct
spending by such agencies would not be significant. JCT staff
estimate that enacting the bill would have a negligible effect
on revenues.
Most provisions of the bill would codify current practices
used to collect tax debt. The federal government currently
collects financial information on its contractors and grant
recipients through a variety of databases. In addition, the IRS
provides data on tax liens and tax debt to various Treasury
Department programs which withhold or reduce certain federal
payments to collect delinquent tax (and nontax) debt owed to
federal agencies. Consequently, CBO estimates that implementing
this bill would not significantly increase administrative costs
to federal agencies.
H.R. 1562 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Matthew
Pickford. This estimate was approved by Theresa Gullo,
Assistant Director for Budget Analysis.
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