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Waxman: Blackwater may have evaded millions in taxes

  • Story Highlights
  • Rep. Henry Waxman: Firm appears to have engaged in "illegal tax scheme"
  • Waxman: Firm may have avoided $31 million in taxes in last year of contract
  • Workers classified as "independent contractors" rather than employees, he says
  • Blackwater denies the allegations
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From Justine Redman
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WASHINGTON (CNN) -- A congressional committee investigating the performance of Blackwater USA questioned whether the private security firm may have evaded paying millions of dollars in taxes.

By classifying workers in Iraq as "independent contractors" rather than employees, Blackwater appears to have engaged in an "illegal tax scheme" that avoided an estimated $31 million in employment-related taxes in the last year of its contract alone, said Rep. Henry Waxman on Monday.

Waxman, chairman of the House Committee on Oversight and Government Reform, also accused the North Carolina-based company of preventing a guard who discovered the practice "from contacting members of Congress or law enforcement officials."

"It is deplorable that a company that depends on federal tax dollars for over 90 percent of its business would even contemplate forbidding an employee to report corporate wrongdoing to Congress and federal law enforcement officials," the California Democrat wrote in a letter to Blackwater founder and CEO Erik Prince.

Blackwater denied the allegations in a statement Monday: "The chairman's contention is incorrect. The United States government has always been aware of Blackwater's relationship with its deployed personnel."

Waxman's committee has been looking into the use of private security contractors in Iraq, holding Blackwater up to particular scrutiny. The company has won more than $1 billion in government contracts since 2001.

Waxman asked Blackwater to provide his committee with documents related to the panel's inquiry by November 19.

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The latest allegations stem from a March letter from the Internal Revenue Service to Blackwater that Waxman's committee obtained. The letter informs Blackwater that the IRS reviewed the case of a Blackwater worker in Afghanistan and determined that the individual should rightfully and legally be classed as an employee -- not an independent contractor -- for tax purposes.

Such a finding would require the company to pay Social Security and Medicare taxes and unemployment insurance premiums for its employees. The letter finds the ruling "may be applicable to any other individuals engaged by the firm under similar circumstances."

But Blackwater said the company appealed the ruling, and "no final determination by the IRS has been made."

An IRS official assigned to the case said he was not authorized to talk to the media, and his manager did not immediately respond to CNN's request for information on the status of Blackwater's case.

In addition, Blackwater spokeswoman Anne Tyrrell said the security contractor who protested his employment status to the IRS was "a problem employee" who had similarly sought money from a previous employer. Tyrrell said the situation is "very easily explained, but I'm not at liberty to discuss it."

Blackwater and the former guard signed a settlement and confidentiality agreement in June, a copy of which the congressional committee released. According to the document, both parties agreed not contact any politician, public official or Blackwater client about the issue.

Blackwater said the Small Business Administration does not consider the firm's guards to be employees under its definitions. That finding stems from a small business contract that the Navy awarded to Blackwater and that other companies bidding for the contract contested.

SBA spokeswoman Christine Mangi said that the agency's findings "to the best of our knowledge ... carry no legal weight outside of our programs."

Waxman also said, "The SBA doesn't determine the tax status for Blackwater or any other taxpayer.

"It's a question for the IRS and, in this case, common sense. The IRS and common sense both tell us Blackwater shouldn't evade its responsibilities by wrongly designating their employees as independent contractors." E-mail to a friend E-mail to a friend

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