Delinquent Taxes & Federal Government Contracts: Three Rules to Know
Falling behind on federal taxes is never a good idea, but for federal government contractors, delinquent taxes can cause extra headaches. Here is a high-level overview of three important ways that delinquent taxes – including, sometimes, personal taxes owed by a contractor’s owners or officers – may affect federal contractors.
FAR 52.209-11 and FAR 52.209-12: Contractor’s Representations & Certifications
The clause at FAR 52.209-11 appears in most federal solicitations and requires offerors to certify whether they have “any unpaid Federal tax liability that has been assessed, for which all judicial and administrative remedies have been exhausted or have lapsed, and that is not being paid in a timely manner pursuant to an agreement with the authority responsible for collecting the tax liability.” The clause at FAR 52.209-12 applies to most offers over $7 million and requires a somewhat similar certification, as well as a certification as to whether the contractor has “filed all Federal tax returns required during the three years preceding the certification.”
A “no” certification under either clause may cause the offer to be rejected. A false certification carries the potential for severe penalties, such as liability under the False Claims Act.
FAR 52.209-5: Representations & Certifications Regarding Principals
FAR 52.209-5 appears in solicitations where the contract value is expected to exceed the Simplified Acquisition Threshold (currently $350,000 for most acquisitions). This clause, among other things, requires the offeror to certify whether any principal of the offeror has “within a three-year period preceding this offer, been notified of any delinquent Federal taxes in an amount that exceeds the threshold at 9.104-5(a)(2) for which the liability remains unsatisfied.” A “yes” certification does not automatically render the offeror ineligible, but could lead to such a determination.
The clause defines “principal” as “an officer, director, owner, partner, or a person having primary management or supervisory responsibilities within a business entity (e.g., general manager; plant manager; head of a division or business segment; and similar positions).” Under the clause, then, government contractors should ensure they have sufficient information about their principals’ personal finances to make this certification accurately.
SBA Certification Programs & Taxes
A contractor may be ineligible to receive an SBA small business certification if either the contractor or a principal has delinquent federal taxes.
For example, 13 C.F.R. 128.201(b), which applies to the SBA’s Veteran-Owned Small Business and Service-Disabled Veteran-Owned Small Business certifications, provides that, with certain exceptions, “[a] business concern is ineligible to be certified as a VOSB or SDVOSB or to participate in the VetCert program if either the concern or any of its principals has failed to pay significant financial obligations owed to the Federal Government.”
In Conclusion
As noted at the outset, this is a high-level introduction to these three key rules and does not cover all nuances. Government contractors should consult with their legal and tax professionals to better understand how the rules apply to them.
Disclaimer:
Nothing contained in this article is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This article is intended for educational and information purposes only. Although the author strives to present accurate information, the information provided in this article is not guaranteed to be accurate, complete, or up-to-date. Reading this article does not establish an attorney-client relationship with the author.
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