Pentagon defends millions to contractor despite unpaid taxes

By TOM VANDEN BROOK AND RAY LOCKER | USA Today | Published: April 16, 2012

WASHINGTON - The tax problems of the military's top propaganda contractor in Afghanistan would not have prevented the Pentagon from awarding it multimillion-dollar contracts, a top official said in a letter to U.S. senators.

The owners of Leonie Industries, the contractor, owed at least $4 million in federal taxes when the contracts were awarded. Because the owners had entered into agreements to pay the overdue taxes with the Internal Revenue Service, they were not required to tell the Pentagon about their tax debt, acting Undersecretary of Defense Frank Kendall wrote in a letter to Sen. Tom Carper.

Carper, D-Del., said he wants the IRS and Pentagon to work more closely to ensure that contractors with large tax debts receive more scrutiny.

"While I welcome the news that the IRS and the contractor have established a plan for the contractor to repay their delinquent taxes, there is still much work to be done when it comes to overseeing government contractors and holding them accountable for tax delinquency," Carper said in a statement. "Going forward, the IRS needs to work more closely with the Department of Defense in examining the tax status of government contractors to ensure that scarce taxpayer dollars are used wisely and efficiently."

Carper and Sen. Tom Coburn, R-Okla., had urged the Pentagon to garnish federal payments made to contractors if they had overdue taxes. They had cited a Feb. 29 USA TODAY report about the growth in Pentagon spending on information operations or propaganda programs. The article detailed how two owners of Leonie Industries, the Pentagon's largest such contractor in Afghanistan, owed more than $4 million in unpaid federal taxes.

The owners, the sister-brother team of Rema DuPont and Camille Chidiac, repaid their taxes in late March, according to documents provided by Gar Smith, a spokesman for Leonie Industries.

"Leonie and my clients were in full compliance with contracting laws related to debts or delinquencies," said L. Lin Wood, a Leonie attorney. "To suggest otherwise would be a clear misrepresentation of the facts."

Kendall told the senators that the Pentagon has a "robust and effective process of collecting contractor tax debt" but must first receive notice of a delinquency from the IRS. Contractors are not considered delinquent, he wrote, if they have entered an agreement with the IRS.

"The Army contracting officer did check when issuing the task orders and found that the contractor had represented that there were no delinquent taxes; on that basis, award was made," Kendall wrote.

A company's tax debt could be considered when making the decision to award a contract, Kendall added. "In this specific instance, there was no indication that the company had such a debt."

Rep. Jason Chaffetz, R-Utah, called "hogwash" the Pentagon's contention that it could not ascertain the tax debts of its contractors. He noted that tax liens filed against Leonie's owners, were public records.

Chaffetz says he would support legislation that would prevent contractors from receiving federal funds if they owe taxes.