B-187903, DECEMBER 21, 1976

B-187903: Dec 21, 1976

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RIGHT OF UNITED STATES TO COLLECT TAX INDEBTEDNESS OF CONTRACTOR BY OFFSETTING OBLIGATION AGAINST BALANCE DUE UNDER GOVERNMENT CONTRACT IS SUPERIOR TO CLAIM OF PAYMENT BOND SURETY OR CONTRACTOR. RESISTS SUCH PAYMENT TO IRS ON THE GROUNDS THAT THE FUNDS DUE THE SURETY ARE EXEMPT FROM TAX LIEN OR LEVY UNDER 26 U.S.C. 6323(C)(4)(C) (1970) (FEDERAL TAX LIEN ACT OF 1966). WAS AWARDED PURSUANT TO SECTION 8(A) OF THE SMALL BUSINESS ACT (15 U.S.C. 6376(A) (1970 ED.)) FOR PUBLIC USE AREA DEVELOPMENT POMONA LAKE. THE WORK WAS COMPLETED BY THE CONTRACTOR. WE HAVE CONSISTENTLY HELD THAT UNDER THESE CIRCUMSTANCES THAT THE GOVERNMENT'S RIGHT OF SET-OFF IS SUPERIOR TO CLAIMS OF A MILLER ACT SURETY ARISING UNDER ITS OBLIGATION INCURRED IN CONNECTION WITH THE PAYMENT BOND.

B-187903, DECEMBER 21, 1976

RIGHT OF UNITED STATES TO COLLECT TAX INDEBTEDNESS OF CONTRACTOR BY OFFSETTING OBLIGATION AGAINST BALANCE DUE UNDER GOVERNMENT CONTRACT IS SUPERIOR TO CLAIM OF PAYMENT BOND SURETY OR CONTRACTOR.

MORA-LANDIS CONTRACTORS; FIREMAN'S FUND INSURANCE COMPANY:

THE CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY, HAS REQUESTED AN ADVANCE DECISION REGARDING THE PROPRIETY OF PAYING THE BALANCE DUE ON ITS CONTRACT WITH MORA-LANDIS CONTRACTORS (MORA-LANDIS) TO THE INTERNAL REVENUE SERVICE (IRS). FIREMAN'S FUND INSURANCE COMPANY (FIREMAN'S FUND), MORA-LANDIS'S MILLER ACT SURETY, RESISTS SUCH PAYMENT TO IRS ON THE GROUNDS THAT THE FUNDS DUE THE SURETY ARE EXEMPT FROM TAX LIEN OR LEVY UNDER 26 U.S.C. 6323(C)(4)(C) (1970) (FEDERAL TAX LIEN ACT OF 1966).

THE CONTRACT, NO. DACW 41-75-C-0194, WAS AWARDED PURSUANT TO SECTION 8(A) OF THE SMALL BUSINESS ACT (15 U.S.C. 6376(A) (1970 ED.)) FOR PUBLIC USE AREA DEVELOPMENT POMONA LAKE, KANSAS. THE WORK WAS COMPLETED BY THE CONTRACTOR, AND A BALANCE OF $26,159.75 REMAINS UNPAID. THE IRS HAS FILED WITH THE ARMY A NOTICE OF LEVY AND A REQUEST FOR OFFSET, GOVERNMENT CONTRACTS IN THE AMOUNT OF $52,428.58. FIREMAN'S FUND HAS REQUESTED THAT THE BALANCE BE PAID TO IT UNDER ITS AGREEMENT WITH MORA-LANDIS IN ORDER THAT FIREMAN'S FUND MAY ENSURE THE PAYMENT OF LABORERS, MATERIAL MEN, SUBCONTRACTORS AND SUPPLIERS.

WE HAVE CONSISTENTLY HELD THAT UNDER THESE CIRCUMSTANCES THAT THE GOVERNMENT'S RIGHT OF SET-OFF IS SUPERIOR TO CLAIMS OF A MILLER ACT SURETY ARISING UNDER ITS OBLIGATION INCURRED IN CONNECTION WITH THE PAYMENT BOND. IN B-169266, JULY 16, 1970, WE SPECIFICALLY ADDRESSED THIS ISSUE IN THE CONTEXT OF THE INSTANT CASE. OUR VIEW, SUBSEQUENTLY AFFIRMED IN AETNA INSURANCE COMPANY V. UNITED STATES, 456 F.2D 773 (CT.CL. 1972), WAS THAT 26 U.S.C. 6323(C)(4)(C) DID NOT AFFECT THE UNITED STATES' COMMON LAW RIGHT OF SET-OFF AS ENUNCIATED IN UNITED STATES V. MUNSEY TRUST CO. 332 U.S. 234 (1947). SEE ALSO, RELIANCE INSURANCE COMPANIES, INC. AND EASTERN CONSTRUCTION CORPORATION, B-183100, APRIL 3, 1975, 75-1 CPD 200 AND CASES CITED THEREIN.

ACCORDINGLY, WE CONCLUDE THAT IT WOULD BE PROPER TO PAY THE BALANCE DUE ON THE CONTRACT TO IRS.