Debt Collection

H.R. 4181 is proposed legislation that would ban delinquent federal debtors, including delinquent taxpayers, from obtaining contracts with government agencies. The bill would also generally preclude delinquent taxpayers from obtaining federal loans (other than disaster loans) or loan insurance or guarantees. GAO supports the idea of barring delinquent taxpayers from receiving federal contracts, loans, loan guarantees, and insurance. In fact, as far back as 1992, GAO urged Congress to consider whether tax compliance should be a prerequisite for receiving a federal contract. However, GAO cautions that there are significant implementation issues with H.R. 4181, particularly with respect to the federal acquisition process, and GAO recommends a phased-in implementation of the provisions and additional standards for when delinquent taxpayers should be barred.

GAO noted that: (1) as of September 30, 1998, nearly 2 million businesses owed $49 billion in cumulative delinquent unpaid payroll taxes and 185,000 individuals responsible for the nonpayment of delinquent payroll taxes owed $15 billion in trust fund recovery penalties (TFRP); (2) the majority of these unpaid payroll taxes and associated TFRPs are not likely to be collected for various reasons; (3) a significant number of both businesses with delinquent unpaid payroll taxes and individuals with outstanding TFRPs also receive substantial payments from the federal government, either for federal benefits or loans or for other payment purposes, such as under federal contracts for goods and services; (4) the Internal Revenue Service (IRS) does not have the systems that would enable it to consistently provide federal agencies with timely, accurate, and complete information on an individual's or business' tax delinquency status; (5) IRS is undergoing a major systems modernization program, and if these modernization efforts are successful, IRS may be able to provide agencies with timely, accurate, and complete tax delinquency status information that could be used as a basis for denying federal loan assistance and contracts to delinquent taxpayers; (6) the Office of Management and Budget (OMB) directs administrators of federal loan, loan insurance, and loan guarantee programs to determine whether an applicant has any type of delinquent federal debt, including a tax debt, for the purpose of determining creditworthiness; (7) however, in regard to tax debts, agencies may not always be complying with this directive; (8) OMB does not direct federal agencies to check on a prospective contractor's tax debts; (9) to help reduce the burden on the acquisition process, imposition of H.R. 4181's barring requirements on the acquisition process could be deferred until IRS has an effective and efficient tax delinquency check program; (10) with the exception of taxpayers that have made arrangements with IRS to make payments on their tax debts, H.R. 4181 would deny loan assistance or contracts to all taxpayers with tax debts that have been outstanding for more than 90 days after the date the tax was assessed; (11) this provision may be too restrictive because it may not allow enough time for delinquent taxpayers to fully exercise their due process rights for settling their tax debts; and (12) after 90 days from the date of the tax assessment, some taxpayers could still be in the process of negotiating payment agreements to resolve their delinquencies.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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