[Decision Concerning Disposition of Refunded Social Security Contributions]

The Department of Labor (DOL) requested a decision regarding the proper disposition of Insurance Contributions Act (FICA) taxes that the Internal Revenue Service (IRS) refunded to a DOL contractor. GAO noted that: (1) half of the funds constituted the contractor's FICA contribution, which the contractor had previously charged to DOL as a contract cost; and (2) the contractor disbursed a portion of the funds to its employees before it agreed to return the balance of the funds to DOL. GAO held that: (1) the contractor could not properly charge the refunded FICA taxes as a contract cost; (2) the contractor should have paid half the refund to DOL; (3) DOL should return the repaid funds to the appropriate M account; and (4) DOL should collect its half of the refund from the contractor, regardless of what the contractor improperly disbursed to its former employees. Accordingly, DOL should recover the funds and return them to the appropriate M account.