Rep. Henry Waxman, who chairs the House Committee on Oversight and Government Reform, has called for a wide-ranging federal investigation into Blackwater Worldwide. He says that the private security contractor violated tax and labor laws by classifying its guards as independent contractors rather than company employees. In letters sent last month, Rep. Waxman asked the Internal Revenue Service and the Labor Department to investigate whether Blackwater defrauded the government out of tax revenue and violated labor laws. He also asked the Small Business Administration to determine whether Blackwater violated federal regulations by claiming it was eligible for small business preferences. Rep. Waxman, in a memorandum to his colleagues on the committee, observed:
The implications of Blackwater’s actions are significant. Committee staff have estimated that Blackwater has avoided paying or withholding up to $50 million in federal taxes by treating its guards as independent contractors rather than employees.
Rep. Waxman also wrote that Blackwater’s claim of eligibility for small business preferences has earned it more than $144 million in government contracts. It is one of the country’s largest private military contractors and has received nearly $1.25 billion in federal business since 2000. Unlike other security companies operating in Iraq, Blackwater says the guards it trains, equips and deploys to Iraq and elsewhere are “independent contractors” hired directly by the federal government and therefore are not company employees. As we all know, under federal law, companies must pay Social Security and other federal taxes on employees. The IRS has warned Blackwater that the company’s classification of a security guard as an independent contractor is “without merit.” The IRS’s finding is the result of an inquiry filed by a Blackwater guard. The company has appealed the IRS ruling.
The primary factor in determining whether a worker is an employee or independent contractor is the degree of control the business has over its worker. Incorrectly classifying a worker could mean steep penalties for the company, including a $25,000 penalty if the IRS determines an appeal is frivolous or groundless. In its March letter to Blackwater, the IRS noted the company paid all of the guard’s travel expenses and signed a written agreement detailing the type of work required. The IRS stated in the letter that a “worker who is required to comply with another person’s instructions about when, where and how he or she is to work is ordinarily an employee.” Interestingly, in defending itself against last year’s shootings involving its security guards, Blackwater officials asserted that they retained “tight control” of their guards and even “fired” some 122 guards in Iraq for improper conduct. Interestingly, Blackwater now contends it does not have enough control over its guards to classify them as company employees, which seems rather odd and certainly inconsistent.
Source: Associated Press
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.