New Tax Disclosure Requirements for Federal Contractors

You are receiving this notice because you are a client or friend of our practice who has a business or other professional interest in doing business with the United States Department of Defense, the General Services Administration or NASA.

On Friday, December 4, 2015, the federal government released an interim rule, effective February 26, 2016, prohibiting the Federal Government from entering into a contract with any corporation having a federal tax liability or a felony conviction under any federal law. The contracting agency is enabled by the interim rule to make exception if two requirement are met:

  1. The agency has considered suspension or debarment of the corporation; and
  2. The agency has made a determination that suspension or debarment of the corporation is not necessary to protect the interests of the government.

The rule requires that all offerors responding to federal solicitations make a representation as to whether the offeror is a corporation with a delinquent tax liability or felony conviction under federal law.

When an offeror indicates it is both a corporation and owes federal taxes or has a felony conviction, then the contracting officer is required to both request additional information from the offeror and notify the agency official responsible for initiating debarment or suspension action. At that point, the CO is disabled from awarding the contract to the offeror unless and until the agency had considered suspension or debarment and decided against it.

A federal tax delinquency is treated elsewhere in the FARs  as greater than $3500 and meeting both of the following conditions:

(i) The tax liability is finally determined. The liability is finally determined if it has been assessed. A liability is not finally determined if there is a pending administrative or judicial challenge. In the case of a judicial challenge to the liability, the liability is not finally determined until all judicial appeal rights have been exhausted.

(ii) The taxpayer is delinquent in making payment. A taxpayer is delinquent if the taxpayer has failed to pay the tax liability when full payment was due and required. A taxpayer is not delinquent in cases where enforced collection action is precluded.

See, FAR 52.209-5.

The new rule also includes a certification requirement for agencies entering into certain contracts worth over $5 million. Generally speaking, if a contract falls under the rule, the agency must receive certain tax certifications.

This rule is the distillation of the issues underlying the inquiries of Congress concerning federal contractors who do not pay their taxes.

If you are facing a federal contracting issue, review these new federal tax compliance requirements and consider the suspension or debarment exposures associated with the associated new disclosure requirements.

This note is intended as a general summary of legal principles and is not intended as legal or tax advice. You should discuss your specific circumstances with a qualified professional before taking an action.