Blackwater Leaks

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