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Blackwater Accused of Tax Evasion, Avoiding Oversight

Congressman Henry Waxman, Chairman of the House oversight committee, is a bulldog -- and he's got his teeth into Blackwater, he is not letting go, and now he continues to draw blood.

Henry Waxman, chairman of the House oversight committee, who is leading congressional investigations into Blackwater, said that a newly discovered March 2007 ruling by the Internal Revenue Service, the tax authority, found that Blackwater's designation of one of its employees as an "independent contractor" was "without merit".

Unlike two other security companies operating in Afghanistan and Iraq, Blackwater has said it designates its workers contractors, not employees, because it is a "model that works" and because its guards prefer the "flexibility" of the contractor relationship.

Two other companies know better than to designate their employees as contractors, but Blackwater ignores the law and chooses to do so because its guards prefer the contractor tax status. Independent contractor (IC) tax status means that the employee does not have payroll taxes removed from their pay and instead pays their own taxes directly.

I've worked as an independent contractor, and I've hired employees who were correctly classified as independent contractors and those who weren't but wanted to have that status, so I'm familiar with the law and the reasons why someone would prefer to work as an IC. The basic test to qualify as an IC is to work in a capacity that is unsupervised, where the decision-making is left up to you and you aren't working under the direction of someone else. Hard to imagine the quasi-military structure of Blackwater security allows for that -- quite the opposite actually -- with its specific command structure and employees taking orders from above and working within defined parameters and daily assignments.

According to Waxman's accounting we're talking about $32 million in unpaid taxes from March 2006 to March 2007, and the IRS decision cited was one which dealt specifically with a Blackwater employee who complained to the IRS about the IC status given him by Blackwater. After looking into the matter the IRS ruled that the employee in question was not an Independent Contractor and they put Blackwater on notice that the ruling could apply to other IC-designated Blackwater employees. Surprise, surprise -- Blackawater ignored the IRS's advice.

But not only did they ignore the IRS advice, they settled with the employee who complained and in the settlement agreement they included a requirement that prohibited the employee from contacting "any politician" or "public official" about its details.

Bulldog Waxman:

"It is deplorable that a company that depends on federal tax dollars for 90 per cent of its business would even contemplate forbidding an employee to report corporate wrongdoing to Congress," Mr Waxman said in a letter to Erik Prince, Blackwater chairman and CEO.

He further alleged that the confidentiality agreement was "particularly suspect" because it was signed by Blackwater general counsel Andrew Howell just as Mr Waxman's committee was stepping up its investigation into Blackwater's activities.

Dum Ta-Dum Dum... Lots more Blackwater hot water ahead. They operate like rogues "above the law" in more ways than those cited previously -- apparently comfortable in the belief that their cozy arrangement with the State department and Bush would protect them.

Blackwater is appealing the IRS ruling.

Note: Wizbang Blue is now closed and our authors have moved on. Paul Hooson can now be found at Wizbang Pop!. Please come see him there!

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Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

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