[Congressional Record Volume 150, Number 61 (Wednesday, May 5, 2004)]
[Senate]
[Pages S4912-S4914]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. COLEMAN (for himself, Mr. Levin, Ms. Collins, and Mr. 
        Reed):
  S. 2383. A bill to amend title 10, United States Code, to require the 
registration of contractors' taxpayer identification numbers in the 
Central Contractor Registry database of the Department of Defense, and 
for other purposes; to the Committee on Armed Services.
  Mr. COLEMAN. Mr. President, I rise today to introduce the Central 
Contractor Registry Act of 2004 whose purpose is to establish a 
centralized contractor database within the Department of Defense and to 
require federal contractors who register in that database to provide 
their taxpayer identification number and their consent to verifying 
that number with the Internal Revenue Service as a condition that must 
precede the awarding of a contract by the Department of Defense. This 
bill will close a $3 billion tax loophole and will help to recover over 
$100 million annually from federal contractors who have not filed 
federal tax returns or who have not paid the taxes they owe the 
government. I am joined by Senators Carl Levin, Susan Collins and Jack 
Reed.
  In a hearing before the Permanent Subcommittee on Investigations, the 
General Accounting Office testified that over 27,000 contractors at the 
Department of Defense owed over $3 billion in unpaid Federal taxes. 
Normally, these taxes could be collected through the Federal Payment 
Levy Program by levying fifteen percent of the contractors' payments. 
In fiscal year 2002, the Financial Management Service should have 
collected over $100 million from tax delinquent Department of Defense 
contractors. However, actual collections for the year were less than

[[Page S4913]]

$500,000. Further, in 2001, the Department of Defense provided the 
Internal Revenue Service with over 26,000 information returns that 
could not be used to determine contractors' tax liability. One of the 
principal reasons for this anemic state of collections and the large 
volume of unusable information returns has been and remains the 
inability of the Department of Defense and the Internal Revenue Service 
to reach an accord on verifying the taxpayer identification numbers of 
the contractors who have registered in the Department of Defenses's 
Central Contractor Registration database.
  Under current law, the Department of Defense's authority to verify 
contractors' taxpayer identification numbers is limited to those 
contractors who have contracts with the Department of Defense and for 
whom the department is required to report miscellaneous income to the 
Internal Revenue Service on a Form 1099 information return. However, 
there are contractors who have registered in the Central Contractor 
Registration for whom the Department of Defense lacks authority to 
verify their taxpayer identification numbers including individuals and 
companies who would like to contract with the federal government and 
contractors who have contracts with agencies and departments other than 
the Department of Defense. On the other hand, current law also allows a 
taxpayer to consent to the verification of their taxpayer 
identification number with the Internal Revenue Service and allows the 
Internal Revenue Service to provide a validated taxpayer identification 
number.
  My bill will resolve the impasse between the Department of Defense 
and the Internal Revenue Service by requesting contractors' consent to 
the validation of their taxpayer identification number as part of the 
registration process. Contractors will not be required to provide their 
consent. But if they do not, they will not be awarded a contract by the 
Department of Defense.
  Further, my bill requires the Department of Defense to warn 
contractors as part of the registration process that if they do not 
provide a valid taxpayer identification number they may be subject to 
backup withholding. This would apply to those contractors who list an 
invalid taxpayer identification number, have a contract with the 
Department of Defense, and will earn miscellaneous income that is 
required to be reported to the Internal Revenue Service.
  I would like to briefly summarize the major provisions of my bill. It 
provides a statutory basis for the Central Contractor Registration and 
renames the database as the Central Contractor Registry. It requires 
that the registry contain contractor's taxpayer identification numbers, 
their consent to verifying their numbers with the Internal Revenue 
Service and for the Internal Revenue Service to provide a corrected 
number if possible. It requires that registrants furnish this 
information as a condition for registration, and requires the 
Department of Defense to warn contractors who fail to provide a valid 
taxpayer identification number that they may be subject to backup 
withholding and requires implementation of backup withholding in cases 
where it is required. It precludes awarding a contract to any 
registrant who has not provided a valid taxpayer identification number 
and excludes from coverage any registrant who is not required to have a 
taxpayer identification number.
  It directs the Secretary of Defense to apply to the Internal Revenue 
Service for inclusion in the Taxpayer Identification Number Matching 
Program and directs the Commissioner of Internal Revenue to provide 
response to the Department of Defense. It directs the Secretary of 
Defense to provide any registrant who is determined to have an invalid 
taxpayer identification number with an opportunity to provide a valid 
number. It further requires that the Central Contractor Registry 
clearly indicate whether a registrant's taxpayer identification number 
is valid, under review, invalid, or not required. Finally, it requires 
that contractors taxpayer identification numbers be treated as 
confidential by federal contract officers who have access to the 
Central Contractor Registry.
  My overall objective in introducing this bill is to ensure that tax 
cheats are not rewarded with federal contracts. If the Department of 
Defense and the Internal Revenue Service do not have accurate and 
reliable taxpayer identification numbers then we will not be able to 
stop this practice. My bill takes the necessary first step toward 
ensuring that the Department of Defense and the Internal Revenue 
Service have valid taxpayer identification numbers in the Central 
Contractor Registry database.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the  
Record, as follows:

                                S. 2383

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Central Contractor Registry 
     Act of 2004''.

     SEC. 2. CENTRAL CONTRACTOR REGISTRY DATABASE.

       (a) Authority.--Chapter 137 of title 10, United States 
     Code, is amended by inserting after section 2302d the 
     following new section:

     ``Sec. 2302e. Central contractor registry

       ``(a) Establishment.--The Secretary of Defense shall 
     maintain a centralized, electronic database for the 
     registration of sources of property and services who seek to 
     participate in contracts and other procurements entered into 
     by the various procurement officials of the United States. 
     The database shall be known as the `Central Contractor 
     Registry'.
       ``(b) Taxpayer Information.--(1) The Central Contractor 
     Registry shall include the following tax-related information 
     for each source registered in that registry:
       ``(A) Each of that source's taxpayer identification 
     numbers.
       ``(B) The source's authorization for the Secretary of 
     Defense to obtain from the Commissioner of Internal Revenue--
       ``(i) verification of the validity of each of that source's 
     taxpayer identification numbers; and
       ``(ii) in the case of any of such source's registered 
     taxpayer identification numbers that is determined invalid, 
     the correct taxpayer identification number (if any).
       ``(2)(A) The Secretary of Defense shall require each 
     source, as a condition for registration in the Central 
     Contractor Registry, to provide the Secretary with the 
     information and authorization described in paragraph (1).
       ``(B) The Secretary shall--
       ``(i) warn each source seeking to register in the Central 
     Contractor Registry that the source may be subject to backup 
     for a failure to submit each such number to the Secretary; 
     and
       ``(ii) take the actions necessary to initiate the backup 
     withholding in the case of a registrant who fails to register 
     each taxpayer identification number valid for the registrant 
     and is subject to the backup withholding requirement.
       ``(3) A source registered in the Central Contractor 
     Registry is not eligible for a contract entered into under 
     this chapter or title III of the Federal Property and 
     Administrative Services Act of 1949 (41 U.S.C. 251 et seq.) 
     if that source--
       ``(A) has failed to provide the authorization described in 
     paragraph (1)(B);
       ``(B) has failed to register in that registry all valid 
     taxpayer identification numbers for that source; or
       ``(C) has registered in that registry an invalid taxpayer 
     identification number and fails to correct that registration.
       ``(4)(A) The Secretary of Defense shall make arrangements 
     with the Commissioner of Internal Revenue for each head of an 
     agency within the Department of Defense to participate in the 
     taxpayer identification number matching program of the 
     Internal Revenue Service.
       ``(B) The Commissioner of Internal Revenue shall cooperate 
     with the Secretary of Defense to determine the validity of 
     taxpayer identification numbers registered in the Central 
     Contractor Registry. As part of the cooperation, the 
     Commissioner shall promptly respond to a request of the 
     Secretary of Defense or the head of an agency within the 
     Department of Defense for electronic validation of a taxpayer 
     identification number for a registrant by notifying the 
     Secretary or head of an agency, respectively, of--
       ``(i) the validity of that number; and
       ``(ii) in the case of an invalid taxpayer identification 
     number, any correct taxpayer identification number for such 
     registrant that the Commissioner can promptly and reasonably 
     determine.
       ``(C) The Secretary shall transmit to a registrant a 
     notification of each of the registrant's taxpayer 
     identification numbers, if any, that is determined invalid by 
     the Commissioner of Internal Revenue and shall provide the 
     registrant with an opportunity to substitute a valid taxpayer 
     identification number.
       ``(5) The Secretary of Defense shall require that, at the 
     place in the Central Contractor Registry where the taxpayer 
     identification numbers of a registrant are to be displayed, 
     the display bear (as applicable)--
       ``(A) for each taxpayer identification number of that 
     registrant, an indicator of whether such number has been 
     determined valid, is

[[Page S4914]]

     being reviewed for validity, or has been determined invalid; 
     or
       ``(B) an indicator that no taxpayer identification number 
     is required for the registrant.
       ``(6) This subsection applies to each source who registers 
     any information regarding that source in the Central 
     Contractor Registry after December 31, 2004, except that 
     paragraphs (1), (2), and (3) do not apply to a source who 
     establishes to the satisfaction of the Secretary of Defense 
     that such source is not required to have a taxpayer 
     identification number.
       ``(c) Confidentiality of Information.--The Secretary of 
     Defense shall ensure that taxpayer identification numbers in 
     the Central Contractor Registry are not made available to the 
     public. The Secretary shall prescribe a requirement for 
     procurement officials of the United States having access to 
     such numbers in that registry to maintain the confidentiality 
     of those numbers.''.
       (b) Clerical Amendment.--The table of sections at the 
     beginning of such chapter is amended by inserting after the 
     item relating to section 2302d the following new item:

``2302e. Central Contractor Registry.''.

  Mr. LEVIN. Mr. President, I rise today to join my colleagues, 
Senators Norm Coleman, Susan Collins and Jack Reed, in introducing the 
Central Contractor Registry Act of 2004. The purpose of this bipartisan 
bill is to strengthen the ability of the Federal Government to stop tax 
cheats from obtaining Federal contracts or use a portion of their 
contract payments to repay their tax debts.
  In February, the Permanent Subcommittee on Investigations, on which 
Senator Coleman and I sit, held a hearing on a report by the General 
Accounting Office which disclosed that over 27,000 contractors at the 
Department of Defense owe $3 billion in unpaid taxes, mostly from 
failing to transmit payroll taxes to the IRS. Think about that for a 
minute--27,000 DOD contractors--more than one in every ten DOD 
contractors--had outstanding tax debts at the same time they were 
holding out their hands for taxpayer dollars.
  Allowing tax cheats to bid on federal contracts is a disservice to 
all of the honest taxpayers out there who manage to meet their tax 
obligations. It is a disservice to all of the military men and women 
who put their lives on the line for us every day. It is a disservice to 
all of the honest companies that compete for the same DOD contracts, 
since companies that do not pay their taxes have lower costs and a 
competitive advantage over the companies that do.
  Under current law, DOD has an obligation to identify any DOD 
contractor with unpaid taxes, to withhold up to 15 percent of their 
contract payments, and to forward that money to the IRS to be applied 
to the contractor's tax debt. The official title of the DOD program to 
carry out this obligation is the Federal Payment Levy Program, also 
sometimes referred to as the DOD tax levy program.
  The first step in the program is for DOD to identify tax delinquent 
DOD contractors who are scheduled to get a contract payment in the near 
future. To identify these contractors, DOD participates in a computer 
matching program administered by the Treasury Department that cross-
checks DOD lists of upcoming contractor payments with IRS lists of 
delinquent taxpayers. If a match occurs, DOD is supposed to withhold 
money from the identified contractor's upcoming contract payments.
  The problem is that the DOD-IRS computer matching program has so far 
produced relatively few matches. In 2003, for example, DOD collected 
only about $680,000 of back taxes through its tax levy program instead 
of the $100 million that GAO estimates should have been collected. That 
means DOD collected less than 1 percent of the back taxes it should 
have.
  On major impediment to the computer matching program has been that it 
depends upon DOD's providing the correct taxpayer identification number 
or TIN for each of its contractors, when many DOD contractors have 
either failed to submit a TIN or supplied an incorrect number.
  When a TIN is incorrect or missing, the computer matching program is 
unable to determine whether the relevant DOD contractor is on the IRS 
list of delinquent taxpayers. Data indicates that, in one year, DOD 
sent the IRS over 26,000 invalid TINs that could not be used.
  To increase the efficiency of the computer matching program, DOD and 
the IRS have tried to improve the accuracy of the TINs in DOD's 
contractor data. The IRS has, for example, set up a computer-based TIN 
validation system that can electronically verify a TIN number in 
seconds. This electronic system is available for use by DOD and all 
other Federal agencies. Unfortunately, the IRS has also interpreted 
certain tax laws as prohibiting DOD from obtaining TIN validations for 
many types of contracts. In addition, in the case of TIN numbers with 
clerical errors, the IRS has interpreted current taxpayer 
confidentiality laws as prohibiting it from supplying DOD with a 
corrected number.
  The bill we are introducing today would eliminate this bureaucratic 
red tape and significantly increase the effectiveness of the tax levy 
program by increasing the accuracy of the TINs used by DOD.
  The bill would strengthen TIN accuracy by focusing primarily on the 
TINs in the Central Contractor Registry, a government-wide database of 
persons wishing to bid on federal contracts. This registry is currently 
administered by DOD, and current Federal regulations require potential 
bidders to self-register in the system by supplying specified 
information. As part of the process, registrants are currently supposed 
to supply a TIN, but many either do not or supply an incorrect number. 
The bill would, for the first time, impose a legal requirement on 
registrants to supply a valid TIN and would also bar contracts from 
being awarded to contractors who fail to supply a valid TIN.
  In addition, the bill would require registrants to authorize DOD to 
validate their TINs with the IRS and obtain a corrected TIN from the 
IRS, if needed and possible. This requirement would apply to all 
registrants in the Central Contractor Registry, no matter what type of 
contract is involved and whether the contract is with DOD or another 
Federal agency. It would also allow the IRS to supply corrected TINs 
where it can promptly and reasonably do so.
  If, by chance, a registrant managed to obtain a DOD contract without 
having supplied a valid TIN, the bill would direct DOD to withhold a 
portion of their contract payments to satisfy their tax debt as 
specified under existing law. Although this backup holding requirement 
has been on the books for years, DOD has not implemented it. The bill 
would require DOD to start doing so.
  Finally, the bill would provide a number of protections. It would 
require DOD and other federal procurement officials not to make TIN 
numbers available to the public, so that this information is kept 
confidential within the procurement community using the Central 
Contractor Registry. It would explicitly exempt from the TIN 
requirements any contractor, such as a foreign business, not required 
by U.S. law to have a taxpayer identification number. The bill would 
also require DOD to show in the registry database whether a particular 
TIN has been validated, is awaiting validation, has been found invalid, 
or is not required, so that procurement officials using the database 
will know the status of a contractor's TIN. If the IRS were to 
determine that a particular TIN was invalid, the bill would require DOD 
to give the relevant contractor an opportunity to correct the number. 
DOD would also be required to warn all registrants in the Central 
Contractor Registry of the possibility of backup withholding in the 
event they fail to provide a valid TIN.
  It is common business sense for the Federal Government to require 
contractors who want to be paid with Federal taxpayer dollars to allow 
the United States to determine whether they owe any taxes and, if so, 
to offset a portion of their contract payments to reduce their tax 
debts. To accomplish that objective, the Federal Government has to do a 
better job in identifying federal contractors with unpaid taxes. Our 
bill, by improving the accuracy of taxpayer identification numbers in 
the Central Contractor Registry, will strengthen DOD's ability to 
identify tax delinquent contractors and either deny them new contracts 
or reduce their tax debts.
  I hope all my colleagues will join us in supporting this 
legislation's enactment during this Congress.
                                 ______