They Owe; We Pay

The federal government continues to pay on contracts held by 27,000 different defense contractors - or about 10% of the total number of defense contractors - who owe some $3 billion in back taxes, the Washington Post reports that the General Accounting Office has discovered. Yet the Defense Department and the IRS have done little to try to collect on the money owed.

Guess who has to make up that shortfall? Us. And guess what happens to us if we fail to pay the IRS? Right. They pin you to the wall and they keep you there until they're satisfied.

Some cases involved substantial sums. One contractor, which provided "base support and custodial services," owed nearly $10 million in back taxes during 2002 -- a year in which it received $3.5 million in defense contract payments. The GAO found that the owner borrowed $1 million from the business, and bought a boat, several cars and a home outside the country with business funds. The business was dissolved in 2003 and its employees were transferred to a related business, which continues to receive payments from the Defense Department.

On Christmas Eve 2002, I received an "Intent to Levy" notice from the IRS on an amount they had never told me previously that I owed. They gave me 10 days to pay or have my assets seized without any prior contact from them. It was a merry little holiday gift during a year in which I'd been unemployed, let me tell you. We were able to work it out, but it's amazing to me that companies collecting money from the government can get by with failure to pay huge amounts, while ordinary taxpayers can be hit harshly.

Fail to pay a government-backed student loan, and I believe the law allows them to go after tax refunds, bank accounts, etc. Unless you're a doctor or other professional who may never have to pay that money back, even if they fail to go into programs they've agreed to work in to offset the loans. Last I knew, they accounted for the highest default loans and the highest default rates.