Comments (49)

Jake D. wrote on October 22, 2007 6:40 PM:

Not only does the SBA determination carry no legal weight outside of their programs, but the IRS field office holding is not yet final.

goodgirlroxie wrote on October 22, 2007 7:15 PM:

I'm pulling my membership in the SBA if it turns out they go to bat for Blackwater. And btw, since when is Blackwater a small business?!

JimBob wrote on October 22, 2007 7:25 PM:

Holding my breath to see whether -- and how -- the Bush administration steps in to fix Blackwater's little tax problem. Give them immunity from taxes, maybe?

Jake D. wrote on October 22, 2007 7:27 PM:

When the U.S. Congress first established SBA, the fundamental question was just what numerical definition should SBA use to define small businesses, industry by industry, to determine what businesses were eligible for SBA's programs. Over the years SBA has established and revised numerical definitions for all for-profit industries, and this numerical definition is called a "size standard." It is almost always stated either as the number of employees or average annual receipts of a business concern.

In addition to establishing eligibility for SBA programs, all federal agencies must use SBA's size standards for its Federal Government contracts it identifies as a small business. Agencies must also use SBA's size standards for their other programs and regulations, unless they are authorized by Federal statute to use something else.

The Small Business Act states that a small business concern is "one that is independently owned and operated and which is not dominant in its field of operation." The law also states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences accurately. SBA's Small Business Size Regulations implement the Small Business Act's mandate to SBA. SBA has also established a table of size standards, matched to North American Industry Classification System (NAICS) industries.

The largest number of allowable employees (I would assume that does not include independent contractors) I could find was 1,500:

http://www.sba.gov/services/contractingopportunities/sizestandardstopics/tableofsize/index.html

That being said, I would have no problem doing away with the SBA.

tekel wrote on October 22, 2007 7:31 PM:

Maybe Blackwater would have better luck with this tax problem if they announce that they're actually a RELIGION. You know, a traditional, old-fashioned faith-based private police service. Like the Church of Scientology.

Sully18 wrote on October 22, 2007 7:37 PM:

I`m an alcohol counselor.When I worked for various hospitals as a contract employee,they took out taxes,and SS.
Now I am contracting on my own.I charge a fee,and they send me a 1099 at the end of the year.That`s the only way I will do this work for anyone.Hospitals burn you out.

I would think that Blackwater would employ these guys as private contractors,but I`m not sure what the law says for a company whose cleaned up a billion over the last seven years.

gtash wrote on October 22, 2007 7:42 PM:

JakeD is absolutely right. SBA a presently defined and tasked does not serve anything "small" in my book, and hasn't for over 35 years.

Supdog wrote on October 22, 2007 7:43 PM:

Apparently, things which are "not exactly true" are, 99% of the time, either outright lies or bullshit.

-The U.S. Small Business Administration has determined in an official finding applying "the criteria used by the IRS for Federal income tax purpose," that "Blackwater security contractors are not employees."-

What Tyrell seems to be saying is that Blackwater contractors are paid via 1099 (as opposed to W2).

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mo2 wrote on October 22, 2007 7:45 PM:

tekel, they just might be planning to call themselves a religion. I read today that the White House has pushed wording into ENDA to allow religious groups to ignore the law. With this White House, if they make a move today it may well be to justify some activity that they are already planning to do (or are unable to continue to hide).

Like eviscerating the EPA. Like arguing that Plame was an agent but not covert. Like dismantling the integrity of the DOJ by changing hiring practices. Like torture. Like Dick Cheney isn't part of the executive branch or the legislative branch. They are always having their lawyers sneak some tiny sentence in that makes the law not applicable to them.

Supdog wrote on October 22, 2007 7:46 PM:

Apparently forum is not html enabled. Alas.

Jake D. wrote on October 22, 2007 7:47 PM:

Thank you, gtash : )

Jake D. wrote on October 22, 2007 7:51 PM:

A legitimate First Amendment argument exists that ENDA should indeed exempt religious groups because activist judges are forcing religious employers to accept applicants who practice lifestyles in direct contravention to said religion's doctrine. What's next? Forcing Catholic hospitals / doctors to perform abortions?

Gary Pruitt wrote on October 22, 2007 7:54 PM:

What do you want to bet the money for these guys has already disappeared down a black hole, and this SOB Prince is already laughing?

Jake D. wrote on October 22, 2007 7:54 PM:

For example, mo2: ENDA opponents say that the legislation, in its current form, would eliminate the ability of organizations such as the Boy Scouts of America to prevent homosexual men from becoming scoutmasters. A policy analyst with Concerned Women for America notes that many faith-based organizations, even those which are tax exempt, would be discriminated against under ENDA. Groups such as Christian schools, Christian camps, faith-based soup kitchens and Christian book stores could be forced BY THE GOVERNMENT to adopt a view of human sexuality which directly conflicts with basic teachings of their faith. ENDA is portrayed by proponents as a panacea against workplace discrimination — a mere extension of the 1964 Civil Rights Act -- but, instead, the legislation would actually violate the Civil Rights Act. It would pit the government directly against religion, which is unconstitutional (last time I and Scalia checked ; )

dmh wrote on October 22, 2007 7:58 PM:

There are a numbe of issues here that are getting obscured.

1. It doesn't matter what Blackwater and its employees want, the question of independent contractor is a matter of law and the parties may not agree to someone being an independent contractor if they meet the employee test.

2. Yes, social security and medicare taxes are important but the big ticket item is overtime under the FLSA. I suspect the employees make a lot per hour and work a lot of hours. If Blackwater must pay them 1 and 1/2 their regular rate of pay for all hours over 40 in a workweek Mr. Prince may living in a double wide next week. And the test for independent contractor under the FLSA is much more stringent than the IRS code and there is no way they are ICs.

Jake D. wrote on October 22, 2007 8:00 PM:

Now, I thought this thread (plus the four other threads today) was supposed to be about Blackwater and the U.S. Small Business Administration -- if you want to discuss the END run of the First Amendment by ENDA, at least admit that's what you want to see happen -- I can even quote Thomas Jefferson for this one : )

Ruffian wrote on October 22, 2007 8:03 PM:

The tax definitions of independent contractors are very specific- one main one being you set your own schdule. I highly doubt that any Blackwater mercenary sets their own schedule. "Oh I'll be in Iraq when I get there and let you know when I am available for work".

EH wrote on October 22, 2007 8:12 PM:

Well, looks like the Blackwater spokesliar did her job by buying herself a little time while this story makes its way through the intertubes.

rapier wrote on October 22, 2007 8:32 PM:

I'm not sure of the tax implications for Blackwater but for the employees, or contractors or whatever, the implications could be big. The biggest potential problem for many might arise if they didn't pay their FICA contributions. If they have incorporated themselves somehow or other and taken out expenses and such and taken lower rates somehow they could have huge liabilities.

There are legal ramifications too. Can you say tax fraud. Can you think penalties or back taxes with interest?

Long ago in the late eightes tax revolt era I knew a few union construction workers who were allowed to claim they were independent contractors by the general contractor who then paid them in full without deductions. That loophole was closed but before it was the state, Michigan in this case went after them and a few left the state. Then the IRS came calling.

For Blackwater I think the problem is mostly a legal one and the potential for fines. We can assume Bush's IRS would be loath to push that but he will be long gone when this reaches the critical stage probably.

Dennis wrote on October 22, 2007 8:39 PM:

Does the Bush/Cheney/Rice/DOJ gang have a good ole boy working over at IRS? We'll see.

You don't have to be a blind conservative not to see it, just an ignorant one to deny it.

ohcomeon wrote on October 22, 2007 8:51 PM:

Lots of small business in Texas were operating this way in the 80's. People who were making minimum wage and working more than 40 hours a week were also responsible for their own taxes like they were a small business. There was finally a crackdown and a number of business disappeared. We can only hope Blackwater has the same fate.

totallynext wrote on October 22, 2007 8:57 PM:

No one is talking about where the work is performed. With the bulk of the work performed out side of the US and am not sure whether or not IRS rules apply.

Richard L. Adlof wrote on October 22, 2007 9:05 PM:

The PRE-Bush43 NLRB and IRS woulda thought nothing else but to declare that a 'contract' employee earning substanially all their income from a sole source throughout a fiscal year as a 'de facto' employee. Legally, this is a no-brainer . . . Unfortunately we live in Bushworld.

anonymouse wrote on October 22, 2007 9:14 PM:

"... not sure whether or not IRS rules apply"

I'll bet if they weren't exempt from the IRS before today, they are now. Bush has always catered to those who do his work. Why would he stop now?

paul wrote on October 22, 2007 9:24 PM:

Yeah, under the rules for everyone else this one is a no-brainer. They work for a single employer, they don't set their own hours, place of work or methods of work, they're directly supervised (even if not well), they're trained (even if not well) by their employer blah blah blah. And that would make Blackwater responsible for their FICA and their withholding. (With criminal penalties if the scheme can be shown to be deliberate). Expect immunity in the next FISA expansion...

It sounds like the SBA just said that for some particular job Blackwater qualified as a small business because it classified people who would otherwise have put it over the size limit as contractors.

P J Evans wrote on October 22, 2007 9:36 PM:

There was a case involving Microsoft and the 'independent' contract programmers it had. The contractors won (in a way): the court ruled that the conditions they were working under made them employees. It may apply to Blackwater.

DML wrote on October 22, 2007 9:44 PM:

As someone who has done defense work for most of my career, it always amazes me that most of my co-workers go to the greatest length to avoid taxes - when every dime they have ever made has come from the federal government! When I point it out to them they shut up in a hurry. I know of several questionable arrangements like this Blackwater tax deal seems to be. I guarantee you Eric Prince is not the only nervous one this evening.

don de drain wrote on October 22, 2007 10:04 PM:

Per my comments in an earlier thread, there are a number of legitimate ways Blackwater could end up avoiding or greatly reducing liability for employment taxes on amounts paid to workers for prior tax periods even if these workers are ultimately classified as employees for federal employment tax purposes. Just because the IRS issues a ruling in response to a Form SS-8 does NOT mean that the IRS is auditing Blackwater's employment tax returns. That audit will likely start soon, as a result of the press received on this issue. IRS gets quite a few "leads" for audits from the public domain.

Furthermore, it is possible that some Blackwater workers are employees while others are independent contractors. I would expect that "true" independent contractors would supply their own "tools" (weapons, etc.), would be free to work for other companies (and would actually work for other companies), would buy their own "uniforms", and would bear the economic risk of their own mistakes. This last factor is important. Typically, state law will provide that an employee who is just "doing their job" and who is sued for something they did while working as an employee must be reimbursed by the employer if there is a judgment against the employee, i.e., that the employer must bear any economic loss of third parties caused by the employee while working on the job. True independent contractors have to to pay out of their own pocket for screwing up. How often has that happened to Blackwater "independent contractors?"

Go read the pleadings in the court cases brought against Blackwater. Is Blackwater taking the position that the workers are independent contractors who are on their own?

Take a look at what Blackwater has presented to Congress. Has Blackwater left the impression that these "independent contractors" are doing their jobs without close supervision, direction and control from the company?

Steve in Seattle wrote on October 22, 2007 10:12 PM:

I have plenty to say about the IRS, but I would never accuse them of favoring a political party.

In my experience, they hear of an issue they investigate it, and they do the report their way.

They know that they will have to live with the policy long after any administration is gone.

If anything the IRS is not willing enough to take direction from Congress.

2turk wrote on October 22, 2007 11:09 PM:

Prince Group using the services of the SBA ? You would think Erik Prince the Christian Dominionist would frown of that. The SBA's operational funding is derived from the federal government to help small business survive/thrive, yet Prince Group and Blackwater are owned by mega millionaire Erik Prince and this outfit pulls in hundreds of millions of dollars per year.

Essentially Erik Prince is like a corporate welfare queen who is double dipping out of the federal trough. One: he collects funds from the feds via no bid contracts from various agencies. Two: He uses the services of the SBA even though he is a mega large company, other small businesses are denied services because Prince took advantage of the system.

I thought these Christian Dominionists did not believe in government provided welfare. Oh,.. I get it, welfare is okay if you are the one hogging it up and pigging out at the government feed trough. Christian/Charlatan !!!!

Lastly, if Erik Prince really wants to know weather his employees should be considered "independent contractors" for tax purposes he might ask the IRS. After all they are the proper authority on that subject. I suspect Prince knows calling his employees "independent contractors" is bogus, and Prince is playing dumb-dumb and intends to cast the blame on the SBA for having informed him incorrectly that his employees are totally responsible for their taxes, including the employers SSI match.

The IRS has a special form, called Form SS-8, that you fill out and submit. They will then render a determination to clarify if the worker is and employee or independent contractor.

http://www.irs.gov/pub/irs-pdf/fss8.pdf

Anonymous wrote on October 22, 2007 11:13 PM:

2Turk:

Exactly. Red flags all around. How is it that Blackwater, a holding company turning hundreds of millions in profit a 'small business?'

Through lying a deceit and gaming the system of course!

See the earlier thread, where a company named "Progressive Investigations" (private eye services) is a women-owned, HUBZone business with a GSA schedule and government preferences. And it shares an address on ol Puddin' Ridge Road in Moyock, NC with Blackwater's.

Is Erik Prince a woman? A minority? Nope, he's just gaming the system.

Blackwater (and all of its subsidiaries) are about to implode.

And while we're at it, what is BW doing with the Navy in Guam?

TheraP wrote on October 23, 2007 12:01 AM:

C92 today (earlier thread) found out that a woman-owned business has the same address as Blackwater.

Seems to me as I've thought about this problem all day that the IRS, now that this is "news" will not cotton to giving Blackwater a pass here. Because then many other "small businesses" (or otherwise) will demand the same rights!

As a taxpayer, I urge the IRS to go after the Prince with everything they've got. Let's have fairness when it comes to taxes! I bet the big corporations won't be happy if Blackwater gets away with this.

Let's have back taxes, and penalties, and huge interest! After all, Blackwater apparently was founded as a patriotic enterprise. Let's have some patriotic taxes paid by them!

Prince, better start counting out your money! And sending it in to the IRS.

2turk wrote on October 23, 2007 12:42 AM:

Erik Prince is not the first Fascist Christian Dominionist who thinks taxes are only for the "little people" to pay, not the rich !!!!

Erik Prince maybe foolish enough to call himself a non profit tax exempt group such as - Prince Group, the Christian Dominionists who spread the word of God around the world by way of the barrel of a machine gun. The IRS would likely still not rule in his favor, he would still not be allowed to treat his employees as "independent contractors".

http://www.yuricareport.com/Corruption/GAOreportOnTaxExemptOrgSummary.pdf

**

Christian Dominionists:

Hence the idea that should a nation minister to the poor or attempt to lift the poor out of poverty or save people from poverty and ill health, that nation is contravening the will of Almighty God and such legislation is contrary to the laws of God. It is only one step further to say that if this is God’s attitude toward the poor, it is morally wrong to help them. So it’s easy to see how Social Security and Medicare are viewed by Dominionists as “evil” programs that rob money from some citizens to enrich others.

In the end, Dominionism should be viewed as a backboard that bounces the New Deal and FDR’s social safety net programs, social security (as well as Medicare) into its political opposite: laissez-faire economics (the motto of 18th century French economists who protested excessive government regulation of industry.) Laissez-faire is a doctrine opposing governmental interference (as by regulation or subsidy) in economic affairs beyond the minimum necessary for the maintenance of peace and property rights. Dominionism opposes the licensing and regulating power of the government.

http://www.yuricareport.com/Dominionism/TheDespoilingOfAmerica.htm

Anonymous wrote on October 23, 2007 12:46 AM:

>>> There was a case involving Microsoft and the 'independent' contract programmers it had. The contractors won (in a way): the court ruled that the conditions they were working under made them employees.

I think the programmers, and many of the rest of us, lost in the end, as this coincides with MicroSoft's big push to bring in H1B programmers, thus driving down the price of talent.

Horton Heath wrote on October 23, 2007 12:46 AM:

>>> There was a case involving Microsoft and the 'independent' contract programmers it had. The contractors won (in a way): the court ruled that the conditions they were working under made them employees.

I think the programmers, and many of the rest of us, lost in the end, as this coincides with MicroSoft's big push to bring in H1B programmers, thus driving down the price of talent.

bmaz wrote on October 23, 2007 1:07 AM:

Blackwater is a "small business"?? Really?

"The ruling, she says, "was for this particular procurement". Is each "procurement" a different business entity for tax purposes? WTF? Fascinating that the Small Business Administration has made this tax law ruling, "that is not a finding (so what is it then?)"; but what does the, well, you know, IRS consider the tax status to be? This is stupid. Is that their final answer?

expat wrote on October 23, 2007 3:09 AM:

"With the bulk of the work performed out side of the US and am not sure whether or not IRS rules apply."

US citizens are liable for taxes on income earned anywhere in the world, with an exemption on the first $84K, more or less.

Billy Jack wrote on October 23, 2007 5:03 AM:

Blackwater IC's do set their own schedule.
They deploy when they want to and don't deploy when they don't want to. If there are slots available they can volunteer and take the job. When the contract is up they're free to work with whoever. They're IC's. Independant

ttc wrote on October 23, 2007 7:23 AM:

RE the last comment: "Blackwater IC's" is an oxymoron

DancingBear wrote on October 23, 2007 7:37 AM:

Rapier--I have little sympathy for the folks who sign up as independent contractors and then don't pay the taxes owed.

If the contractors-who-were-really-employees didn't pay what they owe, Blackwater would be liable for the amounts that they should have been withholding for income taxes, social security and Medicare.

Billy Jack, all you're saying is that it's a temporary job and they can take the job or not. That's not determinative. Do they receive extensive instructions on how, when and where the work is to be done? On what tools or equipment to use? Does the company provide them with training regarding required procedures and methods? Do they have a significant financial investment in their work? Do they have a risk of financial loss?

[Then again, maybe the problem is that Blackwater doesn't provide them with training regarding required procedures and methods.]

With this weak response pointing to the SBA, and Prince's pitiful testimony showing a lack of knowledge or concern about the legal consequences of their actions, and the independent contractor scheme overall, it makes you wonder if Prince ever hired a lawyer to advise them on anything, other than government contracting lawyers perhaps.

buck wrote on October 23, 2007 7:57 AM:

What no one mentioned is that the Microsoft decision a decade ago limited IC contracts to six months--and that's if they otherwise meet the definition of an IC to begin with. So, unless Blackwater limit the terms of employment to six months for every IC, they are up to their ears in shit.

But, of course, there many other problems. For example, do the employees buy their own uniforms on the open market? Even if BW makes them pay for the uniform, if they are the sole supplier, they'd have a hard time explaining that one.

In the late 90s, many industries were scrambling to reclassify their employees following the Microsoft fiasco. The impact on software development was huge. But it was even greater in publishing which used to live by the fruits of freelancers. Now even tiny vendors with a dozen employees feel obligated to classify them as regular employees and not freelancers.

The only reason BW could get away with it is because their "industry" has not been a traditional abuser of the classification and they flew under the radar. Now that the spotlight is on them, they are toast.

On the other hand, the tax implications for

Arne Langsetmo wrote on October 23, 2007 12:53 PM:

goodgirlroxie:

And btw, since when is Blackwater a small business?!

They hire a lot of 'disadvantaged' emplo... -- umm, sorry, "contractors". Like South Africans, Chileans, Afghanis, and the 'stans in central Asia....

Cheers,

Dee Illuminati wrote on October 23, 2007 1:05 PM:

Sully18 and Supdog seem to understand the issue, it is a 1099 issue.

1099s and Taxes
When a person is paid on the form, 1099-misc, all money earned by the individual is paid on an untaxed basis. It is then the responsibility of the individual to file and pay the appropriate taxes. These taxes can be owed to Federal, State and Local governments. Workers compensation and unemployment issues also must be addressed independently.

W-2s and Taxes
When a person is paid on the form W-2, the employer automatically withholds and pays all of the necessary employee income taxes as required by the IRS. These taxes include: Federal Income Tax, State Income Tax, and FICA (Social Security and Medicare). In addition, the employer will pay all of the necessary employer taxes. These taxes include: FICA (Social Security and Medicare), FUTA (Federal Unemployment Tax), and SUI (State Unemployment Tax).

The IRS and Taxes
In recent years, the IRS has begun to realize the large sums of potential tax revenue they are losing due to misclassified 1099 independent contractors who should legally be W-2 employees. When a company pays a contractor on a 1099-misc form, they avoid the following: federal and state tax withholdings, deposits and reports, the employer’s share of Social Security and Medicare taxes, state and federal unemployment insurance premiums, state disability insurance premiums, Workers’ Compensation costs, fringe benefits, vicarious liability for employee negligence, and EEOC regulations. The IRS estimates that it loses between $4 to $20 billion per year in unpaid taxes as a result of this misclassification problem. Understandably, the IRS has made it a priority to investigate 1099-misc forms that are turned in at the end of the tax year. The IRS is continually conducting audits to determine whether or not contractors are being properly classified.

Now the final word on the issue is of course the IRS, but I'm not sure if:

"state and federal unemployment insurance premiums, state disability insurance premiums, Workers’ Compensation costs, fringe benefits, vicarious liability for employee negligence, and EEOC regulations" are applicable?

I guess if somebody chooses to go to Iraq and perform security duties, and gets wounded, do we want the state disability funds used for compensation of this individual?

As to the issue of EEOC, does race and color make for the qualifications that are inherient in retired para-military personnel?

As to employee negligence? What could be argued about that negligence in a war zone? If the state of say North Carolina allows these 'emoployees' to be listed under North Carolina, is there actionable responsibility on the part of North Carolina for liability???

What is REALLY at issue is the "float" or "interest" upon the deferred taxes under 1099 which have moderate penalties as the designation is used extensively in many trades from "rent a nurses" to painting contractors.

Question: I'm self-employed and was told I needed to pay estimated taxes for the current year's taxes. Can I put that money in a savings account instead?
Answer: If the amount by which your tax exceeds your withholding is $1,000 or more, you are required to make quarterly payments. For 2007, the quarterly payment deadlines fall on April 17, June 15, September 17, and January 15. If you make a late payment or fail to pay enough, a penalty may be imposed. Get Form 1040-ES and its instructions.

Question: I'm self-employed and make quarterly estimated payments. Can I charge them to my credit card?
Answer: Yes. You'll need a MasterCard, Discover, Visa, or American Express card to take advantage of this program, and you will be charged a fee.

Question: Is there a way to have federal income tax withheld from unemployment compensation in lieu of making estimated tax payments?
Answer: You may have 10 percent federal tax withheld from your unemployment compensation. Use Form W-4V, Voluntary Withholding Request.

There is usually an 8% or 10% penalty on late or under-withheld obligations.

On the other hand: if the amount is substantial, that money interest free at a 3 month timeframe as a CD returns: 5 percent.

Soooooo.... If you bought a 3 mos CD, paid the estimated fee on time from cash flow, you could effectively offset the amount paid by the interest on the CD.

It is about float and penalties and the tax-aware and genuine contractors are familiar with the laws.

Incidentally down from 5th place from Delaware, North Carolina is 'tax friendly' and I bet that another issue on the part of residency in calaculation of taxes.

But don't worry.... you might get by short term cutting corners on taxes, but long-term you will learn a really tough lesson by cutting corners. It is standard practice to hire H&R block's professional services and get the insurance on audits and report honestly as a cost of performing business.

But at 5% float at a large payroll??? Yeah its all about the float on that money.

dee illuminati wrote on October 23, 2007 1:39 PM:

As an after thought, you have what are called: "cable trash" or 1099 contractors who do catv installations whom are actually "CATV transients" who go from area to area to install catv when there is new lines available after a new hard line contruction boom. Additionally there is "computer transients" as well, people whom don't pay their taxes and work off of 1099 stints whom live in motel rooms and live out of a suitcase. The same is true of all trades, fly by night contractors often plagued with alcoholism and alienated from any social permanence in their life, just floating to the next contract.

I guess there is a hidden cost with contractors or MERC's as they are not eligible for unemployment and disability and when they fall through the safety net end up on the public dole all the same. But the same is true of all the contracting professions. But in the case of the MERC's I guess the tax auditor finds himself sitting across the table from a guy with empty Jack Daniels bottles strewn in the room, no social support or employment, and wondering if the person will cut off their ears and put them in a bag around their belt or something?

The real question is this: Of those contractors whom are not professional and responsible enough to put aside savings, buy health insurance, and to think of tomorrow, what is the hidden costs to society long-term when these people, DOS, DOJ, and Military start exhibiting post traumatic stress and cannot fit back into a secular society?

No if that were the issue being debated with Blackwater, then fine... and expand the debate to all who are serving over there.... but otherwise this is a REALLY BIG YAWN issue.

But all the professions have contractors whom skip town, skip taxes, live like a locust, have substance abuse problems, and are isolated and alienated in this society due in part to the nature of their work and the personal choices they make.

Just damn few might actually cutoff an IRS's auditors ears and make trophies of them like a MERC might.

Derek wrote on October 23, 2007 4:09 PM:

Sully18 and Supdog seem to understand the issue, it is a 1099 issue.

1099s and Taxes
It is a matter of whether or not the "IC's" paid the 15.3% or not (SS, med). Waxman is crying about the employer withholding only half of the 15.3% due. If these "IC's" didn't pay taxes that's one thing and could understand the complaint.

If the "IC's" DID pay the matching employer/employee taxes, ALL 15.3%, which all 1099's are required to, then the taxes are paid. In this case Waxman is saying Blackwater didn't pay them, which is true- the subcontractors did. As long as FED(IRS) got their money they should have I don't think they'll really care. And they shouldn't.

This company has become very political and that's the real issue. Waxman likes the sexiness and sound of "tax fraud scheme". However folks, if 1099's were illegal,why would the IRS create the form for use?

DancingBear wrote on October 23, 2007 5:20 PM:

Derek, that makes no sense at all. Nobody's saying using a 1099 (or engaging an independent contractor) is against the rules. But using a W-2 or a 1099 isn't a matter of the payor's choice. If you're paying over the minimum figure to an independent contractor, you HAVE TO file a 1099, so that the IRS can make sure that the contractor pays up. If you're paying an employee anything, then you HAVE TO withhold income taxes, social security and Medicare and pay that to the government.

The reason the IRS cares is that a lot of supposed independent contractors DON'T make required payments. Why should the IRS chase after hundreds of those guys if Blackwater was supposed to be withholding?

Dee Illuminati wrote on October 23, 2007 6:50 PM:

Derek your correct, and Waxman got the headline, and most people are tax illiterate so it "sounded great, and was less filling!"

I can make as many arguments against making these people employees from an IRS standpoint, most notably benefits that employees are granted as a consequence of their vocation. Again, do we want these 150K eligible for disability payments from state coffers? That point aside, if they walk into the emergency room they get care. That is the real story, if any... the uncalculated costs to the US for utilizing these security contractors. On the other hand? Double the budget for the VA? hmmmmmm..... If only the oil revenue had paid for this invasion as Wolfowitz and Rumsfeld had claimed it would~

BTW, most special forces types are 'intelligent' and do not fit the profile of the isolated and alienated contractor alcoholic. And if you owe lets say a bunch of money on a credit card at ridiculous rates, the late payments of the IRS seem reasonable. But even then, the IRS putting an individual into a past due deliquency can cause a revocation of a security clearance.

There is no crime here... Yawn... I sort of get a bit irritated when there is not genuine Muck here and instead bipartisn squabbling, it undermines genuine discussion of real issues.

You should have seen the response to the 'shemale video assertions' and the spamming of hot phrases that that evoked.. LOL, now thats MUCK worth reading.

I don't give a rats ass if the owner of Blackwater has a sister who gives to the GOP, have no problem with their business practices if they are legal. And when all is said and done, I bet the 1099 contractor is responsible for earned income taxes and any accrual of penalties.

This was a sidebar issue that obfuscated the larger issue of if we have enough active service forces and the 'hidden costs' of the Iraq war. It also 'could be' as a logical extension, an inquiry into the hidden costs of service in Iraq for non-DOD personnel which would include a wide host of contractors, NGO's, and agencies.

The withholding of taxes can limit the ability (cash flow) to hire new contractors which also accrues higher costs in the bid-proposal and staffing to the taxpayer, I guess the only efficiency there is that it saves the treasury from printing the monies and the IRS from churning it, it is arguable that local taxes might get shorted. But all in all.. business as usual... YAWN!

However, if I were an auditor and found a Merc late, I would be pleasant, assure them that the situation was not that bad, and then inform them in 'writing' of the penalties accrued....

Derek wrote on October 24, 2007 8:34 AM:

DancingBear,
No one is saying that they shouldn't issue 1099s. I also stated that if the subs didn't pay the tax, then yes there is a problem.
However, it's premature for Waxman to assume there's a "illegal tax fraud scheme". He shouldn't even know if the subs paid or didn't pay the taxes due.
Again, I will state, if they(subs)didn't pay then there's a problem. If they did pay, then where's the crime?

Do you honestly think on a federal contract the IRS isn't aware of the federal spending going to Blackwater? 32M in back taxes? Not likely. Illuminati nailed it with the security clearance issue. DISCO would get it yanked in a second. Federal contractors are not able to evade taxes. It would be stupid to try. You don't see the IRS storming the palace of Blackwater. I wouldn't bet all of the subs are paid in full, but I would bet that 97% are.(97% is the average reporting rate of the 1099.)

DancingBear wrote on October 25, 2007 7:22 AM:

Blackwater has to follow the law in classifying the guys they're paying as either independent contractors or employees. They don't get off the hook just because maybe the contractors pay their taxes. The compliance or non-compliance is in the up-front treatment. Why do you think the IRS has these rules?