IRS' lips sealed on globetrotting State contractors with big tax bills, GAO says

A GAO investigation of tax delinquents who travel on U.S. passports has uncovered the case of two State Department contractors who owe more than $100,000 in unpaid taxes.

The Government Accountability Office and Internal Revenue Service have their hands tied with regard to notifying the State Department that two State contractors traveling the globe owe more than $100,000 in unpaid taxes to the U.S. Treasury, according to a new report from the GAO.

The two contractors “traveled to Europe, Asia, and the Caribbean performing work for State. These individuals were, or are, potentially performing sensitive work for the Department of State on behalf of the United States,” the GAO report of April 11 said.

However, neither the IRS nor the GAO is permitted to reveal the names of the contractors to State under current law, the report added.

“However, 26 U.S.C. 6103 precludes IRS from disclosing their names to State, and precludes us from both disclosing their names to State and from contacting State to determine whether these individuals have security clearances,” the report said.

The GAO identified the contractors while investigating 25 tax delinquents who recently have been issued U.S. passports.

The GAO suggests that Congress consider authorizing the State Department to deny U.S. passports to individuals who owe substantial unpaid taxes. Currently, there are no such restrictions. If Congress passed such restrictions into law, that would assist in collecting back taxes and reduce the national debt, the report said.

In fiscal 2008, the State Department issued passports to 224,000 people who collectively owed $5.8 billion in unpaid federal taxes. Overall, about 16 million passports were issued that year.

The GAO report contained additional information on one of the State contractors, who owes $100,000 in unpaid taxes.

  • The person owed taxes for several years throughout the 1990s and 2000s, and did not file income tax returns for two recent years.
  • The individual was assessed thousands of dollars in trust fund recovery penalties for failure to pay employment taxes in the mid-2000s. The IRS found that the individual willfully failed to collect, account for, or pay over to IRS the employees’ share of the trust fund taxes.
  • The person has a long history of noncompliance and has been “uncooperative” in making arrangements to satisfy the outstanding tax liability.
  • The IRS filed tax liens against the individual’s property. IRS has referred the person to the Treasury Department for the continuous levy program.
  • The individual recently made trips to Middle East, Europe, Africa, and the Caribbean and also went on an international cruise.

The other State contractor was not described in detail.

The IRS and State declined to provide comments for the report.