[Congressional Record Volume 151, Number 33 (Thursday, March 17, 2005)]
[Senate]
[Pages S3058-S3060]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. COLEMAN (for himself and Mr. Levin):
  S. 679. 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, today I am reintroducing the Central 
Contractor Registry Act. This legislation is particularly relevant this 
week, as we debate a tough budget to restore fiscal discipline.
  Last year the Government Accountability Office testified at a hearing 
before the Permanent Subcommittee on Investigations that over 27,000 
contractors at the Department of Defense owed over $3 billion in unpaid 
Federal taxes. If we want to demonstrate fiscal discipline, it seems to 
me that we ought to be looking at places like this before we start 
talking about cuts to Medicaid or the farm bill. Asking companies that 
win lucrative government contracts to simply pay their taxes seems like 
common sense to me.
  That's why I have introduced the Central Contractor Registry Act. 
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.
  The bill is simple: it establishes a centralized contractor database 
within the Department of Defense, and requires 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.
  Normally, companies that are delinquent in paying their taxes are 
levied 15 percent of the payments they receive as government 
contractors. In fiscal year 2002, this should have amounted to over 
$100 million from tax delinquent Department of Defense contractors. 
However, actual collections for that year were less than $500,000. And 
in 2001, over 26,000 of the defense contracts submitted to the IRS to 
determine contractors' tax liability were unusable.
  One of the principal reasons for this anemic state of collections and 
the large volume of unusable information returns is 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 Defense'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. And 
often the numbers provided are incorrect, but there is no recourse.
  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 contractors' 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,

[[Page S3059]]

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.
  This bill will ensure that tax cheats are not rewarded with Federal 
contracts. As we debate the budget this week, I encourage my colleagues 
to join me in supporting this bill.
  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. 679

       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 2005''.

     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 
     withholding 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 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, 2005, 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.''.


              INTRODUCING CENTRAL CONTRACTOR REGISTRY ACT

  Mr. LEVIN. Mr. President, I join my colleagues, Senators Norm 
Coleman, Susan Collins and Jack Reed, in introducing the Central 
Contractor Registry Act of 2005. The purpose of this bipartisan bill is 
to strengthen the ability of the Federal Government to stop tax cheats 
from obtaining Federal contracts, and for those who have managed to 
obtain contracts, to use a portion of their contract payments to repay 
their tax debts.
  Now, even more than when we introduced a similar bill in May 2004, it 
is clear that new legislation is essential to confront the problem of 
Federal contractor tax debt. Last year the Permanent Subcommittee on 
Investigations, on which Senator Coleman and I sit, raised this issue 
in a hearing based on a report issued by the Government Accountability 
Office, GAO. The report showed that over 27,000 contractors at the 
Department of Defense, DOD, owed $3 billion in unpaid taxes. 
Approximately 90 percent of these unpaid taxes were payroll taxes, 
money that should be going to help fund the social security and 
medicare expenditures that are climbing so rapidly. Too many 
contractors are continuing to duck payment of these payroll taxes, 
while at the same time holding out their hands for taxpayer dollars.
  Beyond the loss in substantial government revenue, allowing tax 
cheats to bid on Federal contracts is a disservice to all citizens who 
meet their tax obligations. It is also a disservice to all of the 
honest companies that compete for the same government contracts, since 
companies that do not pay their taxes have lower costs and a 
competitive advantage over the companies that do.
  Current law requires DOD and other government agencies to identify 
any government contractor with unpaid taxes, to withhold 15 percent or 
more 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, sometimes referred to as the DOD tax levy program.
  In order to identify tax delinquent contractors before they receive 
payment, DOD and other agencies participate in a computer matching 
program administered by the Treasury Department that cross-checks lists 
of upcoming contractor payments with IRS lists of delinquent taxpayers. 
If a match occurs, DOD--in the case of defense contractors--and the 
Treasury Department for all other government contractors is supposed to 
withhold money from the identified contractor's upcoming contract 
payments.
  The problem is that the 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 one percent of the back taxes it should have.
  One major impediment to the computer matching program has been that 
it depends upon a Federal agency's providing the correct taxpayer 
identification number or TIN for each of its contractors, when many 
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 government

[[Page S3060]]

contractor is on the IRS list of delinquent taxpayers. For example, in 
1 year, data indicates that DOD sent the IRS over 26,000 invalid TINs 
that could not be used.

  To increase the efficiency of the computer matching program, the IRS 
has tried to improve the accuracy of the TINs in agency 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 a DOD with a corrected number.
  The bill we are introducing today would eliminate this bureaucratic 
redtape 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 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 
protect privacy by prohibiting DOD and other Federal procurement 
officials from making TIN numbers available to the public. The 
information would be 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. The bill would also require DOD to warn all registrants in 
the Central Contractor Registry of the possibility of backup 
withholding in the event a contractor fails to provide a valid TIN.
  DOD and the IRS have indicated that they are willing to undertake 
many of the changes suggested in the legislation, such as requiring all 
CCR registrants, as a condition of their registration, to authorize DOD 
to validate their TINs with the IRS and obtain a corrected TIN from the 
IRS, if needed and possible. DOD has even drafted possible language to 
accomplish this objective. The IRS, however, has yet to agree to the 
specific language or to take steps to improve TIN validation efforts, 
despite the passage of nearly a year since we introduced this bill in 
last Congress, and despite the fact that some CCR registrants continue 
either to omit their TINs or to provide an invalid TIN. Even if the IRS 
and DOD were to act as promised, the CCR and the privacy protections 
mentioned earlier would benefit from specific statutory language 
addressing this issue. That is why we are re-introducing this bill in 
the 109th Congress.
  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.
                                 ______