Agency Says Blackwater Employee Ruling Not Related to Tax Status

By Dana Hedgpeth
Washington Post Staff Writer
Friday, October 26, 2007

The Small Business Administration said yesterday that its ruling that Blackwater Worldwide's workers are independent contractors instead of company employees should have no bearing on the security contractor's tax liability.

The agency spoke out after Rep. Henry A. Waxman (D-Calif.) questioned on Monday whether Blackwater had violated tax laws and therefore owed millions of dollars. Blackwater classifies its armed guards as independent contractors, allowing it to avoid paying certain federal taxes.

According to Waxman, Blackwater may have improperly 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 spokeswoman for Sen. John F. Kerry (D-Mass.) said he would ask the Senate Finance Committee, which has jurisdiction over the IRS, to look into the matter.

Anne Tyrrell, a Blackwater spokeswoman, denied the company owes the money, calling Waxman's accusations "shortsighted."

The question of how the company classifies its workers came up after a Blackwater security guard, who was working in Afghanistan, asked the IRS to determine his status. In a March 30 letter, an IRS official at a field office in Vermont said the guard was an employee of Blackwater, not an independent contractor. That decision and charges that the employee was required to sign a non-disclosure agreement spurred Waxman to look into Blackwater's tax status.

Tyrrell said Monday that the Small Business Administration had looked at IRS federal income tax criteria and found that "Blackwater security contractors are not employees."

But Kerry, chairman of the Senate Committee on Small Business and Entrepreneurship, asked the agency on Tuesday to further explain its decision, saying he was "concerned that Blackwater is relying on a decision of the Small Business Administration for tax purposes."

In response, Steven C. Preston, administrator of the Small Business Administration, said his agency made a ruling last year in a case in which Blackwater competitors questioned if Presidential Airways, a Blackwater subsidiary, was a small business, according to a letter Preston sent to Kerry's office. The competitors had filed a protest after Presidential was awarded a contract with the Navy to provide helicopter services.

"SBA found that the Blackwater personnel in question were not employees," Preston wrote in his letter to Kerry. Preston said his agency "incorporates IRS tax criteria . . . however, SBA's size determinations are solely for the purposes of ascertaining eligibility for our small business programs and have no applicability to tax liability matters."

Christine Mangi, a spokeswoman for the SBA, said her agency was "just dealing with a procurement issue" in its ruling.

"We don't make tax policy. We don't interpret tax policy," she said. "We don't comment on tax policy. Our main concern is assisting small businesses."

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