Pentagon Still Pays Corporate Tax Evaders Owing $3 Billion

About 27,100 Department of Defense (DoD) contractors owe the federal government $3 billion in unpaid taxes, but the Pentagon continues to hire and pay them with taxpayers' money, a congressional investigation has found.

The government has the power to garnish checks cut to scofflaw contractors but has not done so in a significant way, forfeiting an estimated $100 million a year for the U.S. treasury, the study found.

In one case, the Pentagon paid $3.5 million in 2002 to a company that owes nearly $10 million in back taxes. It provided dining, trash-hauling security and other services at military bases. The owner of the unnamed company allegedly borrowed nearly $1 million from the company, bought a home and a boat in the Caribbean and dissolved the business in 2003. The company transferred its employees to a relative's business and continued to submit invoices and receive payments from the DoD through August 2003, according to the General Accounting Office (GAO).

Another unnamed company that manufactures parts for DoD aircraft owed the government nearly $2 million, and has been paid that much by the DoD in 30 contracts issued from 1997-2002.

Most of the DoD contractors owe primarily unpaid payroll taxes -- meaning they have withheld money from employees' paychecks for Social Security and Medicare but have never passed that money on to the government.

A system exists to find such lapses and garnish their payments, according to Sen. Carl Levin (D-Mich.), but the DoD doesn't make use of it. Congress passed a law six years ago that directed federal agencies to withhold 15 percent of contract payments to any business that owed the government back taxes.