Tax Compliance: Federal Grant and Direct Assistance Recipients Who Abuse the Federal Tax System

GAO-08-31 Published: Nov 16, 2007. Publicly Released: Dec 17, 2007.
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Highlights

Since February 2004, GAO has reported that weaknesses in the federal programs and controls that allowed thousands of federal contractors, tax exempt entities, and Medicare providers to receive government money while owing taxes. GAO was asked to determine if these problems exist for entities who receive federal grants or direct assistance and (1) describe the magnitude of taxes owed, (2) provide examples of grant recipients involved in abusive and potentially criminal activity, and (3) assess efforts to prevent delinquent taxpayers from participating in such programs. To perform this work, GAO analyzed data from the Internal Revenue Service (IRS), three of the largest grant and direct assistance payment systems, representing over $460 billion in payments in fiscal years 2005 and 2006, and the Housing and Urban Development (HUD) Section 8 tenant-based housing program. GAO investigated 20 cases to provide examples of grant recipients involved in abusive activity.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Management and Budget The Director, Office of Management and Budget, should assess the need to issue guidance requiring federal agencies that award certain grants and other direct assistance, where appropriate in relation to the potential adverse effect on potential applications, to conduct actions that would help determine if applicants had unpaid federal tax debt, including obtaining applicant consent to inquire as to tax debt status from IRS; this could be achieved through sampling or other risk-based assessments.
Closed – Implemented
In response to our recommendation, OMB established a Task Group to address the recommendation. Based on its work, the task force found that such actions would increase the cost of compliance without providing a commensurate increase in the reliability of the data already being submitted. As such, the task force concluded that there was no need for action on this matter.
Office of Management and Budget The Director, Office of Management and Budget, should assess the need to issue guidance requiring federal agencies that award certain grants and other direct assistance, where appropriate in relation to the potential adverse effect on potential applications, to consider the result of those inquiries in the award determinations.
Closed – Implemented
In response to our recommendation, OMB established a Task Group to address the recommendation. Based on its work, the task force found that such actions would increase the cost of compliance without providing a commensurate increase in the reliability of the data already being submitted. As such, the task force concluded that there was no need for action on this matter.
Internal Revenue Service The Acting Commissioner of Internal Revenue should evaluate the 20 referred cases detailed in this report for appropriate additional collection action or criminal investigation as warranted.
Closed – Implemented
Through May 2012, IRS has evaluated the 20 cases and took appropriate collection actions, resulting in the closure of the 20 cases.

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