Waxman: Blackwater May Owe Back Taxes

Erik Prince, the owner of Blackwater Security Consulting, greeted House oversight committee members several weeks ago.
Erik Prince, the owner of Blackwater Security Consulting, greeted House oversight committee members several weeks ago. (By Mark Wilson -- Getty Images)

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By Dana Hedgpeth
Washington Post Staff Writer
Tuesday, October 23, 2007

The chairman of a congressional oversight committee has charged that Blackwater Security Consulting, a major government contractor in Iraq, may have violated federal law by not paying taxes and could owe millions of dollars.

Rep. Henry Waxman (D-Calif.), chairman of the Oversight and Government Reform Committee, said in a letter sent yesterday to the owner of Blackwater, Erik Prince, that panel staff members calculated that Blackwater may have avoided paying $31.8 million in Social Security, Medicare, federal income and unemployment taxes from May 2006 through March. In addition, Waxman said the company may owe another $18 million in taxes that it should have paid from April through September.

A Blackwater spokeswoman denied that the company owed the taxes Waxman cited. Blackwater Security Consulting is a subsidiary of Blackwater Worldwide, formerly named Blackwater USA. Blackwater classifies armed guards as independent contractors instead of company employees, allowing it to avoid paying certain federal taxes. Waxman called Blackwater's arrangement an "illegal tax scheme."

Two other companies that have major contracts to provide security in Iraq, Triple Canopy and DynCorp International, classify their armed guards as full-time employees. The three companies received a $2.5 billion, six-year contract from the State Department to provide security in several countries, including Iraq.

Blackwater has come under intense scrutiny recently for its armed guards' use of force. It is facing several U.S. government investigations since a Sept. 16 shooting incident involving its guards in which civilians were killed in Baghdad.

In a March 30 letter, an IRS official at a Vermont field office said a Blackwater security guard, who was working in Afghanistan and had questioned his work classification, was an employee of Blackwater, not an independent contractor. The IRS said the "worker was not engaged in an independent enterprise," and it advised that Blackwater was "responsible for satisfying the employment tax reporting, filing and payment obligations that result from this determination," according to a copy of the letter Waxman released.

An IRS spokeswoman would not comment on the case.

Anne E. Tyrrell, a Blackwater spokeswoman, said that in November 2006, the Small Business Administration looked at the IRS federal income tax criteria and found that "Blackwater security contractors are not employees."

"It's been determined that the way we classify personnel as independent contractors is appropriate," Tyrrell said.

According to Waxman, the armed guard in Afghanistan who questioned his classification was required to sign a nondisclosure agreement in June before Blackwater agreed to pay him back pay and other compensation. Under the terms of that agreement, the guard was prohibited from disclosing any information about Blackwater to "any politician" or "public official," according to a copy of the agreement provided by Waxman.

"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," Waxman wrote in the letter to Prince.

Tyrrell said that "of the multiple thousands of people who have worked for us, just one has made this claim," regarding the question of being a company employee or contractor. She said the company is also appealing the ruling from the IRS field office.

Tyrrell said having the guards as contractors "allows for a lot of leeway. . . . If they want to be home for an important date they can be. It gives them flexibility, and it has worked very, very well."


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