WASHINGTON (AP) — The Internal Revenue Service has been doing business with nearly 1,200 vendors that owe back taxes, including one unnamed contractor that owed a whopping $525 million, a new inspector general's report says.
Altogether, 1,168 IRS vendors owed back taxes totaling $589 million as of July 2012, according to the report released Tuesday. Only 50 were in a payment plan to pay off their debt.
"When the IRS conducts business with vendors that do not comply with federal tax laws, it conveys a contradictory message in relation to its mission to ensure compliance with the tax laws," said J. Russell George, Treasury inspector general for tax administration.
The IRS checks whether vendors owe back taxes when the agency awards contracts, the IRS said. But the IRS doesn't continuously monitor whether vendors are current in their tax bills after contracts are awarded, the report said.
George has recommended the IRS require an annual tax check for all contractors, but the agency says federal acquisition regulations don't authorize them.
The inspector general's office is prohibited by law from revealing the name of any delinquent vendors, including the one that owed $525 million. The report says most of the back taxes, including the biggest, were delinquent for less than a year.
The inspector general's office said its report excluded back taxes that were being contested, counting only those that were either agreed to by the taxpayer or ordered by a court.
About 7 percent of IRS vendors owed back taxes, the report said. However, it suggested the IRS may have been an unwilling business partner with most of them.
For example, the IRS must routinely pay fees to banks and other financial institutions when it orders them to turn over records about taxpayers, the report said. The agency also has to pay filing fees to state and county governments to file tax liens.