Posts tagged as:

Blackwater

Blackwater Leaks

by Kelly on October 27, 2007 · 0 comments

in corporate, politics

Okay, not really leaks but it made for a clever headline.

The Swamp has published a letter that Senator John Kerry (D - MA) wrote to the Senate Committee on Finance regarding the possibility that Blackwater has misclassified employees for tax purposes. The letter follows:

October 26, 2007

The Honorable Max Baucus
Chairman
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Charles Grassley
Ranking Member
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Senators Baucus and Grassley:

Earlier in the week, I sent a letter to Small Business Administrator Stephen C. Preston regarding a press release issued by Blackwater Worldwide in response to House Committee on Oversight and Government Chairman’s Waxman inquiry about possible tax evasion by Blackwater Security Consulting, LLC. The letter inquired about the following statement by Blackwater: “The U.S. Small Business Administration has determined in an official finding applying ‘the criteria used by the IRS for Federal income purpose,’ that ‘Blackwater security contractors are not employees.’’’

I received a prompt response from SBA Administrator Preston indicating that the Small Business Administration issued a size determination regarding Presidential Airways, an affiliate of Blackwater. As expected, the letter states that “…SBA’s size determinations are solely for the purpose of ascertaining eligibility for our small business programs and have no applicability to tax liability matters.”

I am troubled that Blackwater erroneously and inappropriately relied on an SBA size determination for the classification of its workers. SBA incorporates IRS tax criteria as an element in whether personnel are employees for determination of size. In March 2007, the IRS issued a letter to Blackwater ruling that it improperly misclassified a security guard in Afghanistan as an independent contractor. I am concerned that Blackwater is misclassifying its personnel for tax purposes.

Since the Finance Committee has jurisdiction over revenue matters generally, I request that our Committee conduct an investigation of Blackwater to determine if they are evading taxes due to the erroneous misclassification of workers. I share your concerns about the tax gap and believe that the misclassification of workers is a contributing factor and that it is an issue which the Finance Committee should address.

I am enclosing for your reference the letter I sent to the SBA and the response. In addition, I am enclosing a letter that I sent to Blackwater inquiring why they relied upon a SBA size determination for tax purposes.

Thank you in advance for consideration of this important issue. Please keep me apprised of actions on this issue and let me know if you need any additional information from the Senate Committee on Small Business and Entrepreneurship.

Sincerely,
John F. Kerry
Chairman

You can read Senator Kerry’s letter to Blackwater on the blog, as well.

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We Don’t Care if You Kill Anybody, Just Don’t Cheat on Your Taxes

by Kelly on October 23, 2007 · 0 comments

in corporate, international, politics, prosecutions, felonies and misdemeanors

While folks in Washington have seemingly come to terms with the idea that Blackwater might have killed some folks when they shouldn’t have, they are drawing the line where it hits Americans the hardest: cheating on taxes.

Rep. Henry Waxman (D - CA) has made public a letter from IRS to Blackwater from March (yes, March) regarding a potential misclassification of employees as independent contractors. The Service has indicated that the classification was “without merit.”

So, here’s the thing. The line between independent contractors and employees can be fuzzy. But in this instance, I don’t see how it possibly could be.

The employees in question are security guards. My grandfather and my brother have both been security guards - not in Iraq, mind you - but nonetheless. They did not set their own hours. They did not use their own tools. They wore uniforms. They were told where to be and how long to be there. They were clearly employees.

Why do those things matter? As a general rule, the IRS claims that you are an employer if you “have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.” The more control that the company exerts over the worker, the more likely it is that the worker is an employer.

I have a difficult time believing that Blackwater told its security guards to just show up “whenever” without specific guidance - especially in Iraq. Further, I suspect that Blackwater trained the guards (another key that the IRS uses to determine an employer/employer relationship) and that the guards do not advance their own expenses (yet another piece of evidence that the IRS considers) or make an investment in the their work in Iraq. I am also willing to bet that the security guards are not allowed to contract with other companies while in Iraq. Housing and other perks? I’ll bet that Blackwater controls those, too.

Why does any of this matter? Withholding. A company is required to pay matching funds for employees and withhold taxes. Not so for independent contractors. It is possible, according to reports, that Blackwater could have evaded millions of dollars in taxes. And yet, we’re still giving the company government money…

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