FAR Case 2006-011, Representations and Certifications - Tax Delinquency (Comment #4)

May 25, 2007
Via Facsimile and Electronic Mail
Laurieann Duarte
Regulatory Secretariat
General Services Administration
1800 F Street, NW, Room 4035
Washington, DC 20405
Electronic Address: www.regulations.gov
RE: FAR Case 2006-011, Representations and Certifications-Tax Delinquency
Dear Ms. Duarte:
The U.S. Small Business Administration's (SBA) Office of Advocacy (Advocacy)
submits the following comments on the proposed rule to require contractors to
certify their tax delinquency status to the federal government, state and local
governments and any other jurisdictions including foreign governments. The
Civilian Agency Acquisition Council and the Defense Acquisition Regulations
Council (Councils) requested comments on the proposed Representations and
Certifications-Tax Delinquency Regulation. Advocacy and small businesses
welcome the efforts of the Councils to increase the level of corporate tax
accountability. Companies that have unsatisfied tax liabilities should be held
accountable. However, to achieve maximum benefit from this increased level of
corporate tax accountability, several areas of the proposed regulation require a
more balanced approach for small businesses.
Advocacy has been contacted by several small business organizations concerning
the impact of the proposed rule on small business. Advocacy strongly
recommends that the Councils publish an initial regulatory flexibility analysis as
required by Section 603 of the Regulatory Flexibility Act.
Office of Advocacy
Advocacy was established pursuant to Pub. L. 94-305 to represent the views of
small entities before federal agencies and Congress. Advocacy is an independent
office within SBA, so the views expressed by Advocacy do not necessarily reflect
the views of the SBA or the Administration. The Regulatory Flexibility Act (RFA),
as amended by the Small Business Regulatory Enforcement Fairness Act
(SBREFA), gives small entities a voice in the rulemaking process. For all rules
that are expected to have a significant economic impact on a substantial number
of small entities, federal agencies are required by the RFA to assess the impact of
the proposed rule on small business and to consider less burdensome
alternatives. Moreover, on August 13, 2002, President Bush signed Executive
Order 13272, which requires federal agencies to notify Advocacy of any proposed
rules that are expected to have a significant economic impact on a substantial
number of small entities and to give every appropriate consideration to any
comments on a proposed or final rule submitted by Advocacy. Further, the
agency must include, in any explanation or discussion accompanying publication
in the Federal Register of a final rule, the agency's response to any written
comments submitted by Advocacy on the proposed rule.
Background
The Federal Acquisition Regulations (FAR) Part 9.4 provides for debarment,
suspension, and ineligibility of federal contractors. Among other things this Part of
the FAR places an affirmative duty on contractors to certify whether or not, within
a three year period preceding an offer, they have been convicted of or had a civil
judgment rendered against them for tax evasion, or are presently indicted for, or
otherwise criminally or civilly charged with the commission of tax evasion.
The proposed rule would expand this provision by requiring contractors to certify
whether or not they have, within a three-year period preceding the offer, been
convicted of or had a civil judgment rendered against them for violating ?any tax law
or failing to pay any tax,? or been notified of any delinquent taxes for which the
liability remains unsatisfied or the lien has not been released.
The Councils believe that adding the above additional certification requirement to
FAR Part 9 is needed to identify prospective offerors that may have outstanding
and delinquent tax obligations. The Councils believe this new information will help
the Government make an informed responsibility determination before awarding a
contract.
Discussion
Under the RFA, federal regulations must generally undergo certain regulatory
analyses and review before they are finalized. One of these analyses is an Initial
Regulatory Flexibility Analysis (IRFA) required by Section 603 of the Regulatory
Flexibility Act (RFA). An IRFA is required whenever a federal rule is expected
to ?have a significant economic impact on a substantial number of small entities.?
In this instance, the Councils did not prepare an IRFA because of the expectation
that there would not be an economic impact on a substantial number of small
entities. As such, the Councils ?certified? the rule in accordance with section 605
(b) of the RFA. Advocacy believes that the Councils have not provided a factual
basis for this certification. The rule is likely to increase the cost of doing business
with the government, and due to a lack of clarity in the regulation, those increased
costs could be significant for a substantial number of small businesses. Under
these circumstances, the Councils should provide a complete Initial Regulatory
Flexibility Analysis.
The proposed regulation transforms the precisely defined FAR Part 9 debarment,
suspension, and ineligibility of contractor?s violations, a well defined tax code
definition of tax evasion, into an undefined infraction called a tax liability for any tax
law. Currently, the Federal Tax Code identifies many types of tax liabilities.
Moreover, under the Code the taxpayer has the right to dispute any request for
additional federal taxes.
The proposed regulation would require the contractor to certify that he does or
does not have a tax liability not just for federal, state or local, but it may include
foreign jurisdictions. This certification requirement will be part of the contactor?s
official Representations and Certification agreement that is a material component
of the executed contract between the government and the contractor. This level of
mandatory compliance without clear definitions may increase small businesses?
costs of doing business with the government. Moreover, small businesses will be
required to have knowledge of local and foreign tax regulations.
Small businesses bear a disproportionate share of the regulatory burden. A 2005
Advocacy-funded study by W. Mark Crain entitled The Impact of Regulatory Costs
on Small Firms found that of the nearly $1.1 trillion annual regulatory burden,
small businesses with less than 20 employees faced an annual regulatory cost of
$7,647 per employee, nearly forty-five percent higher than regulatory costs facing
large firms (with 500 or more employees). There is a concern that because some
small businesses do not have the financial resources to engage the professional
services of lawyers or tax accountants they will simply certify that they have a tax
liability, when in actuality, with a better-defined regulation a tax liability may not
exist.

Small businesses are concerned that a lack of clear guidance to the contracting
officer will create widely varying interpretations of the rule. Under current FAR
requirements, if a contracting officer makes a determination that a small business
bidder does not meet the responsibility test, the contracting officer, before
rejecting the bid as not being responsible, must seek a Certificate of Competency
(COC) ruling from the Small Business Administration (SBA). The proposed
regulation would seem to not provide the contracting officer with clear guidance as
to what must be done after the contractor has certified that the company has a tax
liability. Thus, the unintended result of this proposed regulation may be the denial
of a COC to an otherwise well-qualified small business. Advocacy does not
believe this was the intent of the proposed regulation; yet if clarity is not
incorporated in the final regulation the end result may be that eligible small
business contractors will be prevented from competing for government contracts.
Advocacy would further urge the Councils to give careful consideration to the need
for reasonable alternatives for small business compliance with the proposed
regulation. In this regard, Advocacy also recommends that the Councils review
HR 1870, Contractor Tax Enforcement Act, the Towns Substitute Amendment,
and other initiatives that would seem to be more equitable to the vast majority of
hard working tax paying small business owners. As an example, the Towns
Substitute to HR 1870 defines a serious tax debt as, ?an outstanding debt under
the Internal Revenue Code of 1986 that is above $2,500 and has not been paid
within 180 days after an assessment of a tax, penalty, or interest under the
Internal Revenue Code of 1986. Such a debt does not include a debt that is being
paid in a timely manner pursuant to an agreement under section 6159 or section
7122 of the Internal Revenue Code of 1986.??
Other recent corporate tax accountability initiatives have been spear headed by
the Federal Contractor Tax Compliance Task Force. The Federal Contractor Tax
Compliance Task Force has promoted significant and permanent improvements to
policies and processes that directly result in increased debt collection. For
example:
? IRS and other federal agencies now share information electronically to
identify contractors that should be subject to the Treasury Department?s Federal
Payment Levy Program (FPLP). Delinquent contractors are identified and their
government payments levied.
? All Taxpayer Identification Numbers (TINs) that are entered in the
Central Contractor Registration (CCR) database, the government?s principal
repository for contractor banking information, are validated to ensure that
contractors subject to the FPLP are correctly identified. Ensuring that the name
and TIN of the contractor match increases the number of payments available for
levy.
? The IRS is now using data from the Federal Procurement Data
System to identify contractors with outstanding tax debts, which will assist the
IRS in prioritizing future offset actions and increasing tax debt recovery.
Small businesses have raised several questions as to how the proposed rule will
synchronize with Part Far 9.4 including these questions:
? Does the affirmation of a tax liability mean the lack of contractor
responsibility?
? Does the affirmation of a tax liability also mean the initiation of
debarment and/or suspension provisions of the FAR?
? Is the contracting officer the only decision-maker in this contract
determination/ award process?
? Can this lack of clarity result in the unintended de-facto denial of a
contract to a small business bidder?
Conclusion
There are more than 300,000 small businesses registered in the Central
Contractor Registration system. These businesses either have federal contracts
or are seeking federal contracts. The Councils? RFA certification of this proposed
regulation without a factual basis makes it impossible for these 300,000 small
businesses to evaluate fully the economic impact of the proposed regulation.
Moreover, it is clear that the Councils should delay further action on this proposed
regulation until such time that an IRFA is published for comment. Advocacy would
also urge the Councils to consider carefully integrating the actions of other
corporate tax accountability initiatives that do not overly burden small business
into the design of the regulation.
Please feel free to contact me or Major Clark at (202) 205-7150
(major.clark@sba.gov) if you have any questions or require additional information.
Sincerely,
Thomas M. Sullivan
Chief Counsel of Advocacy
Major Clark
Assistant Chief Counsel
cc: The Honorable Susan Dudley, Administrator, Office of Information and
Regulatory Affairs
The Honorable Paul A. Denett, Administrator, Office of Federal
Procurement Policy