Federal Acquisition Regulation; FAR Case 2006-011, Representations and Certifications - Tax Delinquencies, 21791-21799 [E8-8508]

Download as PDF Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 4, 9, and 52 [FAC 2005–25; FAR Case 2006–011; Item V; Docket 2008–0001; Sequence 8] RIN 9000–AK73 Federal Acquisition Regulation; FAR Case 2006–011, Representations and Certifications – Tax Delinquencies Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Final rule. AGENCIES: mstockstill on PROD1PC66 with RULES3 SUMMARY: The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) have agreed on a final rule amending the Federal Acquisition Regulation (FAR) to add conditions regarding violation of Federal criminal tax laws and delinquent Federal taxes to standards of contractor responsibility, causes for debarment and suspension, and the certifications regarding debarment, suspension, proposed debarment, and other responsibility matters. DATES: Effective Date: May 22, 2008. FOR FURTHER INFORMATION CONTACT: Ms. Meredith Murphy, Procurement Analyst, at (202) 208–6925 for clarification of content. For information pertaining to status or publication schedules, contact the FAR Secretariat at (202) 501–4755. Please cite FAC 2005–25, FAR case 2006–011. SUPPLEMENTARY INFORMATION: A. Background This final rule was opened to consider adding conditions regarding violation of tax laws and delinquent taxes to standards of contractor responsibility, causes for debarment and suspension, and the certifications regarding debarment, suspension, proposed debarment, and other responsibility matters. The case was initiated in response to a request from the Senate Permanent Subcommittee on Investigations (PSI), which requested implementation of the following: ‘‘To identify noncompliance with tax law . . . the Government should be asking potential contractors, not whether they have been indicted or convicted of tax evasion, but whether they have had any criminal tax law VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 violation in the last three years, whether they have any outstanding tax indebtedness more than one year old, or whether they have any outstanding unresolved federal or state tax lien.’’ The Councils published a proposed rule in the Federal Register at 72 FR 15093, March 30, 2007. The comment period closed on May 29, 2007. The Councils received comments from nine respondents. In drafting the final rule, the Councils have made the following changes from the proposed rule: 1. Violating Federal criminal tax laws. Change ‘‘violating tax laws, failing to pay taxes’’ to ‘‘violating Federal criminal tax laws’’ (9.406–2(a)(3), 9.407–2(a)(3), 52.209–5(a)(1)(i)(B), and 52.212–3(h)(2)). 2. Federal tax delinquency in an amount that exceeds $3,000. a. Change ‘‘tax delinquency’’ to ‘‘Federal tax delinquency in an amount that exceeds $3000’’ (9.104–5(a)(2)). b. Change ‘‘delinquent taxes or unresolved tax liens’’ to ‘‘delinquent Federal taxes in an amount that exceeds $3,000’’ and provide detailed definition of delinquent Federal taxes (which includes unresolved tax liens), with examples (9.406–2(b)(1)(v), 9.407– 2(a)(7), and comparable changes to the clauses at 52.209–5(a)(1)(i)(D) and (E) and 52.212–3(h)(4) and (5)). 3. Other matters of responsibility. a. Move 9.408 and 9.409(a) to 9.104– 5 and 9.104–6, respectively. b. Modify the new 9.104–5(a)(1) to require the offeror to provide the information it deems necessary to demonstrate its responsibility. c. Change the title of 52.209–5 from ‘‘Certification Regarding Debarment, Suspension, Proposed Debarment, and Other Responsibility Matters’’ to ‘‘Certification Regarding Responsibility Matters’’. In accordance with FAR 1.107 and Section 29 of the Office of Federal Procurement Policy (OFPP) Act, approval was requested to revise and extend the existing two non-statutory certification requirements at FAR 52.209–5, Certification Regarding Responsibility Matters, and FAR 52.212–3(h), Offeror Representations and Certifications—Commercial Items. The Administrator for Federal Procurement Policy approved the request on January 16, 2008. The basis for each change and analysis of all public comments follows. 1. General support for the rule. Comments: Three respondents express general support for the proposed rule. Response: None required. PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 21791 2. Broad arguments against inclusion of tax delinquency as debarment criteria. a. Historical. Comments: Two respondents comment on the inclusion of tax delinquency as a cause for debarment. One respondent notes that the Office of Management and Budget (OMB) objected to the inclusion of tax debts as a cause for debarment in 1988, when the Nonprocurement-Common Rule was finalized, on the basis that the Internal Revenue Service (IRS) had sufficient power and authority to collect taxes without using the suspension and debarment tool. The respondent suggests that it would be prudent for OMB to reconcile the philosophical/ policy differences underpinning the proposed FAR case here with those pronounced under the Nonprocurement-Common Rule in 1988. Response: Since 1988, the Government Accountability Office (GAO) has issued various reports highlighting the fact that Federal contractors fail to pay their taxes, e.g., • Financial Management: Thousands of Civilian Agency Contractors Abuse the Federal Tax System with Little Consequence. GAO–05–637 (June 2005). • Tax Compliance: Thousands of Federal Contractors Abuse the Federal Tax System. GAO–07–742T (April 2007). The GAO concluded that contractors’ failure to pay payroll taxes provided them with an unfair advantage in pricing their contracts. The letter from the Senate PSI specifically requests that the Federal Acquisition Regulations include criminal tax law violations and outstanding tax indebtedness or outstanding unresolved tax liens as causes for debarment. b. No relationship to present responsibility. Comment: One respondent expresses concern about using the suspension and debarment process as an enforcement mechanism for violations that have no relationship to a contractor’s present responsibility to perform Government contracts. Response: A contractor’s present responsibility to perform includes financial responsibility, as well as integrity. The rule is not intended as a tool to collect taxes for the IRS, but to provide information to the contracting officer on issues that may affect the contractor’s responsibility. 3. Conflict with NonprocurementCommon Rule. Comment: One respondent notes that the OMB Interagency Suspension and E:\FR\FM\22APR3.SGM 22APR3 mstockstill on PROD1PC66 with RULES3 21792 Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations Debarment Committee was established by E.O. 12549 to monitor implementation of the NonprocurementCommon Rule and as a vehicle of coordination of Federal suspension and debarment policies and practices. If the FAR rule is finalized, it will place the two near mirror image rules in conflict with one another. Response: Upon issuance of this final rule, the Councils believe that the OMB Interagency Suspension and Debarment Committee will consider similar changes to the NonprocurementCommon Rule to keep the two rules parallel. 4. Other information available to the Government. a. Government already has the necessary information. Comment: One respondent comments that most of the information requested by the rule is already available to the Federal Government. The respondent provides examples of ready access to IRS information, including the Central Contractor Registration (CCR) Taxpayer Identification Number (TIN) match program, Federal Payment Levy Program, and a recent DoD final rule requiring the contractor to notify the contracting officer if any tax withholding would jeopardize performance of a contract. Response: Various Federal agencies have access to some information originating with the IRS and regarding prospective contractors. This information, including a verified Taxpayer Identification Number disclosed to the CCR and levy information disclosed to the Financial Management Service in the Federal Payment Levy Program process, is not the same information that offerors are requested to certify under this rule. Contracting officers making responsibility determinations would not be able to deduce from a TIN, levy, or tax withholding whether a prospective contractor has, within a 3-year period preceding the offer, been convicted of or had a civil judgment rendered against them for violating Federal criminal tax law, or been notified of any delinquent Federal taxes in an amount that exceeds $3,000. To a large extent, the information already released to Federal agencies involved in the procurement process would not provide the facts important to making responsibility determinations. Furthermore, to the extent the IRS information has been disclosed to other Federal agencies, disclosure has been made under specific statutory authority allowing disclosure of the information, and use of the information once disclosed, to specifically identified VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 recipients for specifically identified purposes. This generally does not allow the redisclosure or reuse of this information by the recipient for reasons other than that for which it was originally received. Likewise, the information in the IRS’ control cannot be disclosed or used unless specifically authorized by the Internal Revenue Code (I.R.C.) (Title 26 of the United States Code). There are both civil and criminal penalties attached to the unauthorized disclosure of this information by the IRS or, in many cases, authorized recipients. Thus even to the extent some information is in the hands of other Federal agencies, it cannot be used in making responsibility determinations. b. Use of other electronic systems for verification. Comment: One respondent states that the proposed rule needs to be supported by a strong system of verifications. The electronic tools are already in place, or could be easily modified so that the certifications would be more than words on paper, and this could be done without imposing an additional burden on law-abiding companies doing business with the Government. This respondent recommends that the Councils back up the certifications using verifications between the systems of flags being created in the CCR and the representations in the Online Representations and Certifications Application, so that contracting officers are immediately alerted to any discrepancies. Response: The respondent proposes the verification enhancement of requiring the contracting officer to compare and make consistent the CCR debt flag and the offeror’s proposal certification regarding tax delinquencies. The Councils do not agree with this suggestion for several reasons. There will be numerous circumstances under which the two properly would be inconsistent. First, the debt flag system is designed to cover all types of Federal debt, not just tax delinquencies. Further, even if the debt flag in CCR were related to a Federal tax debt, it would give a contracting officer no indication whether an affirmative certification was required with regard to violation of Federal criminal tax law or Federal tax delinquency. Also, the Councils have relocated the former FAR 9.408 to 9.104–5, where its requirements to ask for additional information from the offeror and refer anomalies to the suspension and debarment official will be a regular part of the determination of present responsibility, thus better serving the respondent’s purpose. 5. Certification issues. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 a. Subject to additional criminal penalties. Comment: One respondent states that each certification makes the business and the individual who signs it subject to criminal penalties. The company is also subject to Civil False Claims Act (CFCA) double and treble damages, even if the violations were unintended, as the Government does not need to show intent to defraud; also, the standard of proof is only a ‘‘preponderance of evidence’’. An innocent mistake under another statute could lead to a CFCA violation, which could then lead to a determination of nonresponsibility under the new certification, followed by debarment and suspension proceedings. Response: The certification is not whether the contractor violated another statute, but whether the contractor has been convicted or had a civil judgment rendered against it, or received certain notifications. b. S Corporations or partnerships. Comment: One respondent states that the certification could be problematic for companies that are organized as S corporations or partnerships, because it is unclear under the proposed rule whether each shareholder or partner would be required to certify that neither they nor their fellow shareholders or partners has a tax delinquency. Given that S corporations do not file corporate tax returns, but instead report the company’s tax liability on the individual tax returns on the S corporation partners, the rule could impose a significant level of personal information sharing among business partners. Response: The rule does not change the existing procedures for the certification. The existing certification at 52.209–5 and 52.212–3(h) is that ‘‘(a)(1) The Offeror certifies, to the best of its knowledge and belief, that— (i) The Offeror and/or any of its Principals –. . .’’. The definition of principals is found at FAR 52.209–5, and includes owners and partners. The offeror already has to certify to whether it or its principals are debarred, suspended, proposed for debarment, convicted of or charged with or had a civil judgment for certain offenses. Individual certifications from each owner and each partner are not required. c. Application to commercial items. Comment: One respondent objects to the certification being imposed on commercial item procurements. 41 U.S.C. 430 prohibits the imposition of any certification for a commercial item that is not required to implement a statute or executive order unless the FAR Council has made a determination to impose the certification. The FAR E:\FR\FM\22APR3.SGM 22APR3 mstockstill on PROD1PC66 with RULES3 Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations Council has not done so. Therefore, Part 12 acquisitions should be exempted. Response: 41 U.S.C. 430 is the statute regarding laws inapplicable to acquisition of commercial items. It requires a covered law enacted after October 13, 1994, to be included on the list of laws inapplicable to commercial items, unless the FAR Council makes a written determination. This statute does not apply, as this regulation is not based on statute. This statute does not prohibit application of this rule to acquisitions of commercial items. 41 U.S.C. 425 is the certification statute. It forbids including a contractor certification in the FAR unless it is specifically imposed by statute, or a written justification is provided by the FAR Council to the Administrator of OFPP, and the Administrator approves the inclusion. This statute does apply. The FAR Council has obtained approval from the Administrator of OFPP for inclusion of this nonstatutory certification in the FAR. d. Best knowledge and belief. Comment: One respondent recommends that the certifications should include the phrase ‘‘best knowledge and belief’’. Response: The certifications already do include this phrase in the current FAR in paragraphs 52.209–5(a)(1) and 52.212–3(h). Because no change was proposed to these prefaces, they were not republished in the proposed rule. e. Date certain. Comment: One respondent recommends that the contractor be allowed to add a date certain, such as the end of the last calendar quarter, to the certification. Response: The Councils have elected not to add a ‘‘date certain’’ requirement to the certification regarding notification of delinquent taxes because such an addition would require more, not less, work by offerors. Adding a ‘‘date certain’’ requirement would effectively require offerors to perform a ‘‘sweep’’ prior to each certification. Absent a ‘‘date certain’’ requirement, offerors certify to their best knowledge and belief. With the additional clarifications regarding finality and Federal tax delinquency, offerors should be able to certify with confidence without having to conduct an internal ‘‘sweep.’’ 6. New causes of suspension and debarment and required certification. a. Inclusion of ‘‘any’’ (Federal, State, local, and foreign) tax law violation or delinquency. Comments: The U.S. Small Business Administration, Office of Advocacy (SBA-OA) comments that the proposed rule would require a contractor to certify that it does or does not have a tax VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 liability not just for Federal, State or local, but also foreign jurisdictions. Another respondent comments that the rule should clearly state whether the phrase ‘‘tax laws’’ refers to ‘‘any and all’’ tax laws. Innumerable State, local, and foreign tax statutes may be applicable to an offeror, depending on the size of the business, the number of divisions or subsidiaries, nature, and location of work being performed. A contractor who frequently submits proposals may not know on a real time basis whether any notice has been received relating to all the tax areas. The respondent recommends limiting the rule to Federal income and payroll taxes. Another respondent comments that because a multi-state company can be under audit by hundreds of Federal, State, and local taxing authorities at one time, such a company would find it virtually impossible to comply with the proposed rule. This respondent recommends that the rule be limited to Federal entities. Response: The Councils concur with the respondents and have narrowed the scope of the final rule to Federal tax delinquency and violation of Federal criminal tax laws, except for tax evasion, which applies to evasion of any tax, not just Federal. This should limit an offeror’s need to know on a real-time basis whether any notice has been received relating to other than Federal tax areas (i.e., State, local, and foreign jurisdictions). The Councils’ decision to remove State, local, and foreign tax violations (except for tax evasion) from the scope of this rule is because their inclusion would unduly burden the offerors and the contracting officer, who would potentially face uncertainty when assessing the impact of multijurisdictional tax violations on the award process. Although the Councils do agree to limiting to Federal criminal tax law violations and Federal tax delinquency, they have not specifically limited the final rule to address just Federal income and payroll taxes, although such taxes certainly constitute the bulk of Federal taxes. Any violation of Federal criminal tax law or Federal tax delinquency can affect the contractor’s responsibility, regardless of the specific tax involved. Tracking of all Federal criminal tax violation or Federal tax delinquency (even if other than income or payroll) does not increase the complexity of the certification, but simplifies it. b. Tax evasion, violating tax law, failing to pay taxes. Comment: One respondent comments that the proposed rule transforms the PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 21793 precisely defined FAR Subpart 9.4, ‘‘Debarment, Suspension and Ineligibility,’’ inclusive of a welldefined tax code definition of tax evasion, into an undefined infraction called a tax liability for any tax law. Another respondent recommends deletion of the term ‘‘tax evasion’’ as a basis for suspension or disbarment, because ‘‘tax evasion’’ is covered by the new causes: ‘‘violating tax laws’’ and ‘‘failing to pay taxes’’. Response: The Councils agree that the term ‘‘tax evasion’’ is covered by the proposed phrases ‘‘violating tax laws’’, and ‘‘failing to pay taxes’’, although those phrases cover a much broader range of circumstances. However, the Councils also concur that the term ‘‘tax evasion’’ is a precisely-defined wellunderstood term, applicable to all types of taxes (Federal, state, local, and foreign) and therefore have retained the term. The final rule has been drafted so that the term ‘‘tax evasion’’ is no longer totally a subset of the subsequent terms. The term ‘‘violating tax laws’’ has been made more specific to cover only the violation of ‘‘Federal criminal tax laws’’ (e.g., willful failure to file). The FAR sections 9.406–2(a) and 9.407– 2(a)(3) are intended to focus on criminal violations. The letter from the Permanent Subcommittee on Investigations specifically requested that the FAR should require certification with regard to criminal tax law violation. The decision to limit the cause for debarment/suspension to Federal criminal tax law violation was also based on the conclusion that violation of other than criminal tax laws probably has less bearing on contractor responsibility. Because the certification with regard to criminal tax law violation is restricted to Federal criminal tax law, it is necessary to retain ‘‘tax evasion’’ as well, which applies to evasion of any tax, not just Federal taxes. The broad circumstance covered by the phrase ‘‘failing to pay taxes’’ is not necessarily a criminal offense, and the Councils have therefore deleted it from the specified paragraphs. The noncriminal failure to pay taxes is subsequently covered in the rule using a more precisely defined term ‘‘delinquent taxes’’. c. Delinquent taxes – need definition. Comment: One respondent recommends a clear definition of ‘‘delinquent taxes’’, which allows for due process to dispute the tax liability without penalty of debarment or suspension. Another respondent states that use of the term ‘‘delinquent taxes’’ significantly lowers the standard from tax evasion. Because the IRS does not E:\FR\FM\22APR3.SGM 22APR3 mstockstill on PROD1PC66 with RULES3 21794 Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations have a clear definition of ‘‘delinquent taxes’’, it is difficult to ensure compliance with the new standard. It is unclear how this definition accommodates taxpayers who are disputing tax liability. Another respondent recommends that the certification provide that an installment agreement or offer-incompromise not be considered a ‘‘delinquent’’ tax subject to reporting requirements. The respondent recommends the term ‘‘notice of delinquency’’ be deleted or defined to reflect the adjudication of a tax liability after due process. A fourth respondent recommends that the definition of ‘‘delinquent taxes’’ be revised to specify that all avenues of appeal have been closed, to allow for due process in disputing the tax liability. Response: The Councils agree that the definitions of ‘‘delinquent taxes’’ and ‘‘tax delinquency’’ need clarification. For purposes of the FAR rule, the definition should have two components. First, the tax liability should be finally determined (e.g., it is not a proposed liability subject to further administrative or judicial challenge and it has been assessed (‘‘finality’’ element)). Second, the taxpayer must have neglected or refused to pay a liability that has become due (‘‘delinquent’’ element). The Councils considered, as a starting point, whether the definition of ‘‘delinquent taxes’’ used in certain provisions of the I.R.C. might be useful in defining the term for purposes of this rule. For example, I.R.C. section 7524 requires an annual notice of tax delinquency be provided to a taxpayer with a ‘‘tax delinquent account’’. I.R.C. section 6103(l)(3) allows disclosure of return information to a Federal agency where an applicant for a Federal loan has a ‘‘tax delinquent account’’. See also Internal Revenue Manual 11.3.29.6(8). A ‘‘tax delinquent account’’ for purposes of these provisions, however, is an account which shows up as being unpaid on the IRS computer systems. These provisions do not allow for the possibility for further dispute of the liability, for IRS error, or for whether the taxpayer is currently required to pay the liability. While for purposes of these provisions, this definition may be adequate, we agree that for purposes of this FAR rule a different definition is warranted. i. Finality. This definition should apply only to tax liabilities that are finally determined, not proposed or under valid dispute. For example, this would not apply to proposed deficiencies shown on a statutory notice of VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 deficiency which a taxpayer is entitled to contest in Tax Court. The liabilities should have been assessed and should generally be subject to enforced collection action, such as a tax lien or levy (although there may be something precluding the IRS from taking enforced collection action, as further discussed below). There should be no pending administrative or judicial challenge to the underlying liability. An administrative or judicial challenge could include a refund claim, collection due process lien or levy hearing, deficiency case, interest or penalty abatement case, etc. In the case of a judicial challenge to the liability, there would be no finality until all judicial appeal rights have been exhausted. The Councils considered whether it would provide helpful information to the contracting officer for offerors to report in the certification tax liabilities that had no remaining administrative challenge, but might still have open avenues of judicial challenge. The Councils decided that to provide due process, it would be more useful to the contracting officer and suspending and debarring official (SDO) to focus on unpaid taxes for which there is no pending administrative or judicial challenge to the underlying liability. ii. Delinquency. If there is a finally determined tax liability, a taxpayer should be deemed ‘‘delinquent’’ for purposes of this definition only if that taxpayer has refused or neglected to pay that liability when full payment is due and required. For example, some respondents suggested that a taxpayer who has entered into an installment agreement or offer-in-compromise should not be considered to be ‘‘delinquent’’. The Councils agree. A taxpayer who has entered into such an agreement with the IRS is not currently required to make full payment of the liability. A taxpayer is also not delinquent in cases where the IRS is precluded from taking collection action, because in those cases payment from the taxpayer is also not currently due and required. For example, a taxpayer who has filed for bankruptcy protection should not be considered to be delinquent for purposes of this definition. (As discussed above, the IRS may also be precluded from taking enforced collection action in cases where the tax liability is not finally determined). d. Unresolved tax liens. Comment: One respondent states that the term ‘‘received notice of a tax lien’’ is too expansive or ambiguous because the notice could be mistaken and the lien filing could be contested. Another PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 respondent states that all avenues of appeal should be allowed to dispute a filed notice of tax lien. Response: The Councils agree with these comments, but have deleted the references to ‘‘unresolved tax liens’’ and ‘‘received notice of a tax lien’’ from the final rule. It is superfluous to have separate certification/contractor responsibility requirements for delinquent taxes and for tax liens, especially since the final rule more precisely defines ‘‘delinquent taxes’’. e. Minimum threshold for reporting. Comments: Three respondents propose minimum thresholds. The respondents suggest that the wide range in amounts of tax issues and the various stages of administration with various authorities suggest the establishment of a threshold for disclosure to contracting officers. • One respondent states that the value of actionable information to contracting officials in assessing a contractor’s responsibility would be improved by establishing a minimum threshold level below which reporting would be unnecessary. The respondent points out that companies receive a variety of notices, often for minor amounts that by any reasonable standard would not call into question a contractor’s present responsibility. They propose $25,000 as the threshold. • Another respondent uses the term ‘‘materiality’’ in their comments and expresses a concern that a tax dispute of $100 requires the same certification as $1,000,000 dispute. Consequently, the respondent suggests use of threshold equal to the greater of $100,000 or 1% of the contract bid amount. • The SBA-OA suggests a minimum threshold of $2,500. Response: The Councils agree that both contractors and contracting officers will be unnecessarily burdened by the proposed rule with numerous disclosures that do not have a direct bearing on responsibility. To mitigate such a result, the Councils have set a minimum threshold of $3,000, consistent with the legislation that was favorably reported on May 9, 2007 by the Subcommittee on Government Management, Organization and Procurement of the House Oversight and Government Reform Committee (HR 1870, Towns Substitute Amendment), but recognizing the recent inflationary adjustment to the micro-purchase threshold. f. Increase scope of certification. Comment: One respondent comments that the certifications should be revised to address potentially criminal behavior before it is identified by the IRS, by asking for simple certification that the E:\FR\FM\22APR3.SGM 22APR3 mstockstill on PROD1PC66 with RULES3 Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations company has been paying its taxes. The respondent suggests the additional certification should be added to both FAR 52.209–5 and 52.212–3, which would read: ‘‘Have b, have not b, paid all payroll and corporate taxes due.’’ These certifications would require that the contractor affirm that it is following the law, not simply that the IRS hasn’t caught the company breaking the law. Response: While the purpose of the additional proposed certification is well-intended, such a ‘‘have paid’’ certification would only present the contractor’s position or perspective regarding its tax situation, and would not account for situations where a taxing authority and the contractor may be in dispute over whether or not the contractor has paid all taxes due. Therefore, such a certification would not provide the information pertinent to a responsibility determination. Furthermore, should a contractor check the ‘‘have not’’ box, it would be the other certifications that would provide more specific information regarding violation of Federal criminal tax laws or delinquent Federal taxes. Therefore, we do not believe such an additional certification would add any important information. 7. What do contracting officers do upon receipt of a positive certification? Will ‘‘de facto’’ debarment result? a. Lack of clear guidance to contracting officers. Comment: The Small Business Administration Office of Advocacy (SBA-OA) indicates that small businesses are concerned that the lack of clear guidance to contracting officers, particularly after the contractor has certified that the company has a tax liability, will create widely varying interpretations of rule. SBA-OA raised several questions: • Does the affirmation of a tax liability mean the lack of contractor responsibility? • Does the affirmation of a tax liability also mean the initiation of debarment and/or suspension provisions of the FAR? • Is the contracting officer the only decision maker in this contract determination/award process? Another respondent comments that additional guidance is needed at FAR 9.408(a) to provide criteria by which contracting officers can assess whether a potential tax issue is of sufficient magnitude to deny award. The guidance should provide examples. Response: There is already specific guidance to the contracting officer in the FAR. FAR 9.103 prohibits any acquisition unless the contracting officer makes an affirmative VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 determination of responsibility. The FAR provides the standards that the contracting officer is required to consider when determining contractor responsibility. This rule does not in any way change the process for determination of responsibility, just adds one more factor to consider. FAR 9.408 provides specific direction to the contracting officer as to the appropriate procedures to follow when an offeror provides an affirmative response to paragraph (a)(1) of the certification at 52.209–5 or paragraph (h) of the provision 52.212–3. The contracting officer must— • Request such additional information from the offeror as the contracting officer deems necessary in order to demonstrate the offeror’s responsibility to the contracting officer; and • Notify, prior to proceeding with award, in accordance with agency procedures, the agency official responsible for initiating debarment or suspension action, when an offeror indicates the existence of an indictment, charge, conviction, or civil judgment (now the Councils have also added Federal tax delinquency in an amount greater than $3,000). In order to more clearly associate these procedures to the responsibility determination required in FAR Subpart 9.1, these procedures, as well as the clause prescription for the certifications, have been moved to FAR 9.104. Furthermore, the Councils have modified the requirement to request such additional information as the contracting officer deems necessary. The Councils specify that the request should be made promptly, upon receipt of offers, so as not to delay the procurement, and has placed the burden upon the offeror to provide the information it deems necessary to demonstrate its responsibility. When an offeror has made an affirmative response to the certification, the offeror is in a better position to know what evidence is available to mitigate the response and demonstrate its responsibility. Several of the other revisions to the final rule, as already discussed, better define and limit the circumstances that require reporting and will eliminate many extraneous affirmations that may have little bearing on contractor responsibility. • The broad phrases ‘‘violating tax laws, failing to pay taxes’’ have been replaced with ‘‘violation of Federal criminal tax law’’. • Notification of ‘‘delinquent’’ taxes is restricted to delinquent Federal taxes in an amount that exceeds $3,000, and ‘‘delinquent’’ is clearly defined, limiting applicability to tax liability that has PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 21795 been finally determined and which the taxpayer has not paid when it has become due, with several examples provided. In specific response to the SBA-OA questions— • The affirmation of a tax liability does not necessarily mean the lack of contractor responsibility. A tax liability is just one of many factors to be evaluated by the contracting officer and, as appropriate, the SDO. • The affirmation of a tax liability does not necessarily mean the initiation of debarment and/or suspension provisions of the FAR. If the contracting officer forwards information to the SDO, the SDO will further investigate and evaluate before deciding to initiate suspension or debarment proceedings. • The contracting officer may consult with the SDO. The SDO may determine in advance of contract award that the contractor is presently responsible, although not with regard to the award of a particular contract. b. Certificate of Competency. Comment: SBA-OA was concerned that the unintended result of the rule may be denial of a Certificate of Competency (COC) ruling from SBA to an otherwise qualified small business. Response: The policy at FAR 9.103(b) is clear with regard to making responsibility determinations involving small businesses. If the prospective contractor is a small business concern, the contracting officer shall comply with Subpart 19.6, Certificates of Competency and Determinations of Responsibility. If the contracting officer determines that an apparent successful small business lacks certain elements of responsibility, the contracting officer must refer the matter to the SBA. The final rule does not change this policy or make any exceptions to compliance with Subpart 19.6, if the contracting officer determines that a small business lacks certain elements of responsibility based upon affirmative responses to the certifications. SBA’s COC regulations currently state that if a small business concern is debarred from Federal procurement, proposed or suspended from Federal procurement pending debarment to protect the Government’s interests, SBA will find that small business ineligible for COC consideration. c. De facto debarment. Comment: One respondent states that to subject a potential contractor to an informal blacklisting or a formal contracting officer decision of nonresponsibility repeatedly for the same condition may subject the Government to a legal challenge on the basis of de facto debarment. Generally, E:\FR\FM\22APR3.SGM 22APR3 mstockstill on PROD1PC66 with RULES3 21796 Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations these matters should be referred to agency suspending and debarring officials. The respondent recommends additional regulatory or guidance language to the contracting officer. SBA-OA questions whether the lack of clarity of the rule can result in the unintended de-facto denial of a contract to a small business bidder. Another respondent comments that the proposed rule is not de facto debarment, but simply a good way to further ensure that contractors are indeed responsible. Response: The Councils concur that this rule will not cause de facto debarment. This rule does not change the process at all, but just adds information for consideration in the determination of a contractor’s responsibility. A contracting officer is required to make an affirmative determination of responsibility in accordance with the standards in the FAR. The rule requires the contracting officer to consider the new certifications relating to taxes in the certification at 52.209–5 or 52.212–3(h), among other information when making responsibility determinations. • An affirmative response to one of the certifications does not necessarily mean that the contractor is not responsible. Even if the contractor is determined to be not responsible, that does not constitute a de facto debarment. • A contracting officer is required to request additional information, and notify, prior to proceeding with award, in accordance with agency procedures, the agency official responsible for initiating debarment or suspension action, where an offeror indicates the existence of an indictment, charge, conviction, or civil judgment, or Federal tax delinquency in an amount that exceeds $3,000. • Making a single determination of nonresponsibility does not constitute de facto debarment, as long as the contracting officer refers the matter to the SDO, so that the Government will not continue to deny awards to the offeror without the due process of the suspension and debarment process. d. Incentive for contacting officer to assume guilt. Comment: One respondent comments that while the proposed rule would not instantaneously debar a contractor nor expressly prohibit a contracting officer from awarding a contract to a company that informs the Government of the delinquent tax or unresolved tax lien notifications, there would be a strong incentive for the contracting officer to assume guilt and award the contract to another company. VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 Response: The respondent does not present any evidence that there would be a strong incentive for contracting officers to assume guilt and award a contract to another company when a contractor provides an affirmative response to the certification at 52.209– 5 or 52.212–3(h). The contracting officer is required to follow the regulations at FAR Subpart 9.1 when making a responsibility determination. In fact, the Councils find that a contracting officer has strong incentive not to assume guilt and find an offeror nonresponsible, as such irresponsible action would be highly likely to result in a law suit. However, in order to further prevent contracting officers from assuming anything, the final rule has been narrowed to exclude the need to certify with regard to unpaid taxes until there has been a final determination, and there are not further avenues of administrative or judicial appeal. This will protect offerors from having to report unresolved tax disputes, which may still be resolved in their favor. 8. Small business issues. a. Impact on small businesses. i. Will hurt small businesses. Comments: One respondent states that because the regulations are unclear, and because some small businesses do not have the financial resources to employ lawyers or tax accountants, small businesses will simply certify they have a tax liability. SBA-OA was also concerned that without a factual basis for the certification, it is impossible for the approximately 300,000 small business registered in the CCR to fully evaluate the economic impact of the proposed regulation. One respondent comments that this certification could hurt companies that have owned up to their mistakes and paid their relevant tax liability, interest, and penalties, a standard which particularly hurts small businesses. Response: The basis for a certification is clearly delineated in the final rule. A small business can tell without hiring a tax accountant or lawyer whether they have been convicted of violation of Federal criminal tax law or have received a notice from the IRS regarding delinquent Federal taxes. If the tax liability has been satisfied, then the notification need not be reported in the certification. If an offeror has been convicted of violation of Federal criminal tax law or received notification of delinquent taxes for which the liability has not been satisfied, then that information will be evaluated on a case-by-case basis to determine whether the notification of delinquent taxes or conviction of violation of Federal criminal tax law is PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 an indication that the offeror is not presently responsible. ii. The proposed rule will help small businesses. Comment: One respondent states that the organizations they represent vigorously support the Councils’ efforts to better enforce the responsibility requirement for all Federal contractors. The respondent believes that further strengthening the electronic systems and FAR 9.408 will help small businesses compete. Response: No response required. b. Need reasonable alternatives for small business compliance. Comment: SBA-OA states that it welcomes the efforts of the Councils to increase corporate tax accountability, but caveats this with the statement that several areas of the proposed regulation require a more balanced approach for small businesses. The SBA-OA urges the Councils to give careful consideration to the need for reasonable alternatives for small business compliance with the proposed regulation. As one alternative, the respondent recommends a minimum threshold of $2,500. Response: As previously stated, the Councils have revised the final rule to make it less burdensome for all respondents, including small businesses: • Limit to Federal tax delinquency and violation of Federal criminal tax laws (except for tax evasion). • Clearly define ‘‘delinquent taxes,’’ limiting applicability to tax liability that has been finally determined and which the taxpayer has not paid when it has become due. To make it even clearer, examples are provided. • Set a minimum threshold of $3,000 (adjusted for inflation). c. Need Initial Regulatory Flexibility Analysis. Comment: SBA-OA stated that an Initial Regulatory Flexibility Analysis is required by Section 603 of the Regulatory Flexibility Act when a Federal rule is expected to have a significant economic impact on a substantial number of small entities. The Councils stated in the preamble to the proposed rule that they did not expect the rule to have such a significant impact on a substantial number of small entities. SBA-OA commented that the Councils did not provide a factual basis for this assessment. SBA-OA stated that the rule is likely to increase the cost of doing business with the Government, and that due to the lack of clarity in the regulation, those increased costs could be significant. Response: The Councils worked with SBA-OA to make the impact of the rule E:\FR\FM\22APR3.SGM 22APR3 mstockstill on PROD1PC66 with RULES3 Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations on small business minimal. Small businesses must already complete the certification at 52.209–5, including information on tax evasion. The new certification only requires the offeror to certify whether it has, or has not, within a three-year period preceding the offer, been convicted of violating Federal criminal tax laws or been notified of any delinquent Federal taxes in an amount that exceeds $3,000 for which the liability remains unsatisfied. This is a very clearly defined certification, and a small business should not have difficulty identifying the correct response, especially after limiting it to delinquent Federal taxes of which it has received notice. The small business is not required to assess whether there are any unpaid tax liabilities of which it has not been notified (as some respondents requested). Either it got such notice or it did not. If it got the notice of delinquent Federal taxes, either it satisfied the liability or it did not. After review of the final rule, SBA-OA is satisfied that the final rule achieves a more balanced approach for small business, and that a Regulatory Flexibility Analysis is not required. 9. Ways to further improve: Waiver of privacy rights; FCTCTF to resolve issues; use DCAA to monitor. Comments: One respondent comments that the tax certification is an excellent idea and should also carry a waiver of privacy rights under I.R.C. section 6103 to permit expedited access to contractor tax records, parallel to the TIN matching process. The respondent also suggests that the joint Federal Contactor Tax Compliance Task Force (FCTCTF) is the perfect forum to resolve issues, and that the Defense Contract Audit Agency could monitor tax compliance. Response: No waiver of privacy rights is required, because this certification creates no need for Government contracting officers to access any IRS or other tax records or submissions. Indeed, it would be improper for contracting officers to do so. The function of the certification is to provide contracting officers with information on an aspect of a prospective contractor’s present responsibility (as required by FAR Subpart 9.1). Contracting officers should not, and cannot, become involved in any aspect of a tax delinquency (e.g., collection, adjudication). The Councils cannot agree with the suggestion regarding the Federal Contactor Tax Compliance Task Force because that body’s charter does not include resolving tax issues. Similarly, it is not part of Defense Contract Audit VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 Agency’s mission to monitor tax compliance. 10. Intersection with Public Law 109– 222. Comments: One respondent references the law (presumably referring to Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. 109–222) requiring Federal, State and certain local contracting entities to withhold 3% of each payment made after December 31, 2010. The respondent states that it strongly opposes this arbitrary payment withholding provision and looks forward to commenting on the implementing federal regulations, while simultaneously seeking a repeal of the law. Another respondent expresses its appreciation for the Councils seeking to address the issue of delinquent taxpayers receiving Federal contracts through certifications rather than the punitive withholding envisioned by Section 511 of Pub. L. 109–222. This respondent urges the Councils to seize this opportunity to make the FAR strong enough to obviate the need for the draconian provisions of Pub. L. 109– 222, which affect all contractors, regardless of their compliance practices. This respondent points out that the construction industry, where there is already a practice of retainage, will suffer in particular from the impact of the 3% withhold. Certifications and enforcement provide a much more surgical approach to the problem of the tax gap. Tax collection should be left to the tax enforcement professionals, rather than contracting personnel. Response: While the respondents may prefer the certifications proposed by this rule to the withholding requirements of Pub. L. 109–222, this rule is not an alternative to those 3% withholding requirements, which are statutory. Any discussion of implementation of that statute is outside the scope of this case. 11. Relocation of FAR 9.408 and 9.409. The Councils have moved two sections, FAR 9.408 and 9.409, out of FAR Subpart 9.4, Debarment, Suspension, and Ineligibility, to FAR Subpart 9.1, Responsible Prospective Contractors, for several reasons. First, locating the material at FAR 9.408 does not appear to be the most logical placement. The Councils have moved these directions to the contracting officer as to what to do when an offeror makes a positive response to one of the certifications under FAR 52.209–5 to 9.104–5, under the section on standards for determining the responsibility of prospective contractors. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 21797 Second, the certification no longer relates solely, or primarily, to suspension or debarment. It relates to broader considerations of an offeror’s general responsibility. Thus, while certain responses on the certification could result in a referral to the Suspending and Debarring Official, the main purpose of the clause is to provide information that a contracting officer should use in the mandatory pre-award determination of an offeror’s present responsibility for the purpose of awarding a contract only to such responsible offerors, the subject of Subpart 9.1. In addition, the title of the clause at FAR 52.209–5 has been shortened to the broader, and more accurate, ‘‘Certification Regarding Responsibility Matters.’’ This is not a significant regulatory action and, therefore, was not subject to review under Section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804. B. Regulatory Flexibility Act The Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration certify that this final rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The Councils worked with SBA-OA to make the impact of the rule on small business minimal. Small businesses must already complete the certification at FAR 52.209–5, including information on tax evasion. The new certification only requires the offeror to certify whether it has, or has not, within a 3-year period preceding the offer, been convicted of violating Federal criminal tax laws or been notified of any delinquent Federal taxes in an amount that exceeds $3,000 for which the liability remains unsatisfied. This is a very clearly defined certification, and a small business should not have difficulty identifying the correct response, especially after limiting it to delinquent Federal taxes of which it has received notice. The small business is not required to assess whether there are any unpaid tax liabilities of which it has not been notified (as some respondents requested). Either it got such notice or it did not. If it got the notice of delinquent Federal taxes, either it satisfied the liability or it did not. C. Paperwork Reduction Act The Paperwork Reduction Act does apply; however, these changes to the E:\FR\FM\22APR3.SGM 22APR3 21798 Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations FAR do not impose additional information collection requirements to the paperwork burden previously approved under OMB Control Number 9000–0094 and 9000–0136. List of Subjects in 48 CFR Parts 4, 9, and 52 Government procurement. Dated: April 4, 2008. Al Matera, Director, Office of Acquisition Policy. 9.104–6 Solicitation provision. The contracting officer shall insert the provision at 52.209–5, Certification Regarding Responsibility Matters, in solicitations where the contract value is expected to exceed the simplified acquisition threshold. I 4. Amend section 9.105–1 by revising paragraph (c)(3) to read as follows: 9.105–1 Obtaining information. * 4.1202 Solicitation provision and contract clause. * * * * (c) * * * (3) The prospective contractor— including bid or proposal information (including the certification at 52.209–5 or 52.212–3(h) (see 9.104–5)), questionnaire replies, financial data, information on production equipment, and personnel information. * * * * * I 5. Amend section 9.406–2 by removing from paragraph (a)(3) ‘‘tax evasion,’’ and adding ‘‘tax evasion, violating Federal criminal tax laws,’’ in its place; and by adding paragraph (b)(1)(v) to read as follows: * 9.406–2 Therefore, DoD, GSA, and NASA amend 48 CFR parts 4, 9, and 52 as set forth below: I 1. The authority citation for 48 CFR parts 4, 9, and 52 continues to read as follows: I Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 U.S.C. 2473(c). PART 4—ADMINISTRATIVE MATTERS 2. Amend section 4.1202 by revising paragraph (e) to read as follows: I * * * * (e) 52.209–5, Certification Regarding Responsibility Matters. * * * * * PART 9—CONTRACTOR QUALIFICATIONS 3. Add sections 9.104–5 and 9.104–6 to read as follows: I mstockstill on PROD1PC66 with RULES3 9.104–5 Certification regarding responsibility matters. (a) When an offeror provides an affirmative response in paragraph (a)(1) of the provision at 52.209–5, Certification Regarding Responsibility Matters, or paragraph (h) of provision 52.212–3, the contracting officer shall— (1) Promptly, upon receipt of offers, request such additional information from the offeror as the offeror deems necessary in order to demonstrate the offeror’s responsibility to the contracting officer (but see 9.405); and (2) Notify, prior to proceeding with award, in accordance with agency procedures (see 9.406–3(a) and 9.407– 3(a)), the agency official responsible for initiating debarment or suspension action, where an offeror indicates the existence of an indictment, charge, conviction, or civil judgment, or Federal tax delinquency in an amount that exceeds $3,000. (b) Offerors who do not furnish the certification or such information as may be requested by the contracting officer shall be given an opportunity to remedy the deficiency. Failure to furnish the certification or such information may render the offeror nonresponsible. VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 Causes for debarment. * * * * * (b) * * * (1) * * * (v) Delinquent Federal taxes in an amount that exceeds $3,000. (A) Federal taxes are considered delinquent for purposes of this provision if both of the following criteria apply: (1) The tax liability is finally determined. The liability is finally determined if it has been assessed. A liability is not finally determined if there is a pending administrative or judicial challenge. In the case of a judicial challenge to the liability, the liability is not finally determined until all judicial appeal rights have been exhausted. (2) The taxpayer is delinquent in making payment. A taxpayer is delinquent if the taxpayer has failed to pay the tax liability when full payment was due and required. A taxpayer is not delinquent in cases where enforced collection action is precluded. (B) Examples. (1) The taxpayer has received a statutory notice of deficiency, under I.R.C. § 6212, which entitles the taxpayer to seek Tax Court review of a proposed tax deficiency. This is not a delinquent tax because it is not a final tax liability. Should the taxpayer seek Tax Court review, this will not be a final tax liability until the taxpayer has exercised all judicial appeal rights. (2) The IRS has filed a notice of Federal tax lien with respect to an assessed tax liability, and the taxpayer has been issued a notice under I.R.C. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 § 6320 entitling the taxpayer to request a hearing with the IRS Office of Appeals contesting the lien filing, and to further appeal to the Tax Court if the IRS determines to sustain the lien filing. In the course of the hearing, the taxpayer is entitled to contest the underlying tax liability because the taxpayer has had no prior opportunity to contest the liability. This is not a delinquent tax because it is not a final tax liability. Should the taxpayer seek tax court review, this will not be a final tax liability until the taxpayer has exercised all judicial appeal rights. (3) The taxpayer has entered into an installment agreement pursuant to I.R.C. § 6159. The taxpayer is making timely payments and is in full compliance with the agreement terms. The taxpayer is not delinquent because the taxpayer is not currently required to make full payment. (4) The taxpayer has filed for bankruptcy protection. The taxpayer is not delinquent because enforced collection action is stayed under 11 U.S.C. 362 (the Bankruptcy Code). * * * * * I 6. Amend section 9.407–2 by— I a. Removing from paragraph (a)(3) ‘‘tax evasion,’’ and adding ‘‘tax evasion, violating Federal criminal tax laws,’’ in its place; I b. Removing from the end of paragraph (a)(6) the word ‘‘or’’; I c. Redesignating paragraph (a)(7) as paragraph (a)(8); and I d. Adding a new paragraph (a)(7) to read as follows: 9.407–2 Causes for suspension. (a) * * * (7) Delinquent Federal taxes in an amount that exceeds $3,000. See the criteria at 9.406–2(b)(1)(v) for determination of when taxes are delinquent; or * * * * * 9.408 [Removed and reserved] 7. Remove and reserve section 9.408. 8. Amend section 9.409 by revising the section heading; by removing paragraph (a); and by removing the paragraph designation (b). The revised heading reads as follows: I I 9.409 * Contract clause. * * * * PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES 9. Amend section 52.209–5 by— a. Revising the section heading; b. Removing from the introductory paragraph ‘‘9.409(a)’’ and adding ‘‘9.104–6’’ in its place; I I I E:\FR\FM\22APR3.SGM 22APR3 Federal Register / Vol. 73, No. 78 / Tuesday, April 22, 2008 / Rules and Regulations c. Revising the clause heading and the date; I d. Removing from paragraph (a)(1)(i)(B) ‘‘tax evasion, or receiving stolen property; and’’ and adding ‘‘tax evasion, violating Federal criminal tax laws, or receiving stolen property;’’ in its place; and I e. Removing from the end of paragraph (a)(1)(i)(C) the period and adding ‘‘; and’’ in its place; and I f. Adding paragraph (a)(1)(i)(D) to read as follows: I 52.209–5 Certification Regarding Responsibility Matters. mstockstill on PROD1PC66 with RULES3 * * * * * CERTIFICATION REGARDING RESPONSIBILITY MATTERS (MAY 2008) (a)(1) * * * (i) * * * (D) Have b, have not b, within a three-year period preceding this offer, been notified of any delinquent Federal taxes in an amount that exceeds $3,000 for which the liability remains unsatisfied. (1) Federal taxes are considered delinquent if both of the following criteria apply: (i) The tax liability is finally determined. The liability is finally determined if it has been assessed. A liability is not finally determined if there is a pending administrative or judicial challenge. In the case of a judicial challenge to the liability, the liability is not finally determined until all judicial appeal rights have been exhausted. (ii) The taxpayer is delinquent in making payment. A taxpayer is delinquent if the taxpayer has failed to pay the tax liability when full payment was due and required. A taxpayer is not delinquent in cases where enforced collection action is precluded. (2) Examples. (i) The taxpayer has received a statutory notice of deficiency, under I.R.C. § 6212, which entitles the taxpayer to seek Tax Court review of a proposed tax deficiency. This is not a delinquent tax because it is not a final tax liability. Should the taxpayer seek Tax Court review, this will not be a final tax liability until the taxpayer has exercised all judicial appeal rights. (ii) The IRS has filed a notice of Federal tax lien with respect to an assessed tax liability, and the taxpayer has been issued a notice under I.R.C. § 6320 entitling the taxpayer to request a hearing with the IRS Office of Appeals contesting the lien filing, and to further appeal to the Tax Court if the IRS determines to sustain the lien filing. In the course of the hearing, the taxpayer is entitled to contest the underlying tax liability because the taxpayer has had no prior opportunity to contest the liability. This is not a delinquent tax because it is not a final tax liability. Should the taxpayer seek tax court review, this will not be a final tax liability until the taxpayer has exercised all judicial appeal rights. (iii) The taxpayer has entered into an installment agreement pursuant to I.R.C. § 6159. The taxpayer is making timely payments and is in full compliance with the agreement terms. The taxpayer is not delinquent because the taxpayer is not currently required to make full payment. VerDate Aug<31>2005 16:41 Apr 21, 2008 Jkt 214001 (iv) The taxpayer has filed for bankruptcy protection. The taxpayer is not delinquent because enforced collection action is stayed under 11 U.S.C. 362 (the Bankruptcy Code). * * * * * 10. Amend section 52.212–3 by— a. Revising the date of the clause; b. Removing from paragraph (h) ‘‘Debarment, Suspension or Ineligibility for Award’’ and adding ‘‘Responsibility Matters’’ in its place; I c. Removing from the end of paragraph (h)(1) the word ‘‘and’’; I d. Removing from paragraph (h)(2) ‘‘tax evasion, or receiving stolen property; and’’ and adding ‘‘tax evasion, violating Federal criminal tax laws, or receiving stolen property;’’ in its place; I e. Removing from paragraph (h)(3) ‘‘offenses.’’ and adding ‘‘offenses enumerated in paragraph (h)(2) of this clause; and’’ in its place; and I f. Adding paragraph (h)(4) to read as follows: I I I 52.212–3 Offeror Representations and Certifications—Commercial Items. * * * * * OFFER REPRESENTATIONS AND CERTIFICATIONS—COMMERCIAL ITEMS (MAY 2008) * * * * * (h) * * * (4) b Have, b have not, within a three-year period preceding this offer, been notified of any delinquent Federal taxes in an amount that exceeds $3,000 for which the liability remains unsatisfied. (i) Taxes are considered delinquent if both of the following criteria apply: (A) The tax liability is finally determined. The liability is finally determined if it has been assessed. A liability is not finally determined if there is a pending administrative or judicial challenge. In the case of a judicial challenge to the liability, the liability is not finally determined until all judicial appeal rights have been exhausted. (B) The taxpayer is delinquent in making payment. A taxpayer is delinquent if the taxpayer has failed to pay the tax liability when full payment was due and required. A taxpayer is not delinquent in cases where enforced collection action is precluded. (ii) Examples. (A) The taxpayer has received a statutory notice of deficiency, under I.R.C. § 6212, which entitles the taxpayer to seek Tax Court review of a proposed tax deficiency. This is not a delinquent tax because it is not a final tax liability. Should the taxpayer seek Tax Court review, this will not be a final tax liability until the taxpayer has exercised all judicial appeal rights. (B) The IRS has filed a notice of Federal tax lien with respect to an assessed tax liability, and the taxpayer has been issued a notice under I.R.C. § 6320 entitling the taxpayer to request a hearing with the IRS Office of Appeals contesting the lien filing, and to further appeal to the Tax Court if the IRS determines to sustain the lien filing. In the course of the hearing, the taxpayer is PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 21799 entitled to contest the underlying tax liability because the taxpayer has had no prior opportunity to contest the liability. This is not a delinquent tax because it is not a final tax liability. Should the taxpayer seek tax court review, this will not be a final tax liability until the taxpayer has exercised all judicial appeal rights. (C) The taxpayer has entered into an installment agreement pursuant to I.R.C. § 6159. The taxpayer is making timely payments and is in full compliance with the agreement terms. The taxpayer is not delinquent because the taxpayer is not currently required to make full payment. (D) The taxpayer has filed for bankruptcy protection. The taxpayer is not delinquent because enforced collection action is stayed under 11 U.S.C. 362 (the Bankruptcy Code). [FR Doc. E8–8508 Filed 4–21–08; 8:45 am] BILLING CODE 6820–EP–S DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Part 33 [FAC 2005–25; FAR Case 2006–031; Item VI; Docket 2008–0001; Sequence 9] RIN 9000–AK79 Federal Acquisition Regulation; FAR Case 2006–031, Enhanced Access for Small Business Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Final rule. AGENCIES: SUMMARY: The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) have agreed on a final rule amending the Federal Acquisition Regulation (FAR) to implement Section 857 of the John Warner National Defense Authorization Act for Fiscal Year 2007. DATES: Effective Date: May 22, 2008. FOR FURTHER INFORMATION CONTACT: Ms. Meredith Murphy, Procurement Analyst, at (202) 208–6925 for clarification of content. For information pertaining to status or publication schedules, contact the FAR Secretariat at (202) 501–4755. Please cite FAC 2005–25, FAR case 2006–031. SUPPLEMENTARY INFORMATION: A. Background DoD, GSA, and NASA published a proposed rule in the Federal Register at 72 FR 46950 on August 22, 2007. No E:\FR\FM\22APR3.SGM 22APR3

Agencies

[Federal Register Volume 73, Number 78 (Tuesday, April 22, 2008)]
[Rules and Regulations]
[Pages 21791-21799]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-8508]



[[Page 21791]]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 4, 9, and 52

[FAC 2005-25; FAR Case 2006-011; Item V; Docket 2008-0001; Sequence 8]
RIN 9000-AK73


Federal Acquisition Regulation; FAR Case 2006-011, 
Representations and Certifications - Tax Delinquencies

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) to add conditions 
regarding violation of Federal criminal tax laws and delinquent Federal 
taxes to standards of contractor responsibility, causes for debarment 
and suspension, and the certifications regarding debarment, suspension, 
proposed debarment, and other responsibility matters.

DATES: Effective Date: May 22, 2008.

FOR FURTHER INFORMATION CONTACT: Ms. Meredith Murphy, Procurement 
Analyst, at (202) 208-6925 for clarification of content. For 
information pertaining to status or publication schedules, contact the 
FAR Secretariat at (202) 501-4755. Please cite FAC 2005-25, FAR case 
2006-011.

SUPPLEMENTARY INFORMATION:

A. Background

    This final rule was opened to consider adding conditions regarding 
violation of tax laws and delinquent taxes to standards of contractor 
responsibility, causes for debarment and suspension, and the 
certifications regarding debarment, suspension, proposed debarment, and 
other responsibility matters. The case was initiated in response to a 
request from the Senate Permanent Subcommittee on Investigations (PSI), 
which requested implementation of the following:
    ``To identify noncompliance with tax law . . . the Government 
should be asking potential contractors, not whether they have been 
indicted or convicted of tax evasion, but whether they have had any 
criminal tax law violation in the last three years, whether they have 
any outstanding tax indebtedness more than one year old, or whether 
they have any outstanding unresolved federal or state tax lien.''
    The Councils published a proposed rule in the Federal Register at 
72 FR 15093, March 30, 2007. The comment period closed on May 29, 2007. 
The Councils received comments from nine respondents.
    In drafting the final rule, the Councils have made the following 
changes from the proposed rule:
    1. Violating Federal criminal tax laws.
    Change ``violating tax laws, failing to pay taxes'' to ``violating 
Federal criminal tax laws'' (9.406-2(a)(3), 9.407-2(a)(3), 52.209-
5(a)(1)(i)(B), and 52.212-3(h)(2)).
    2. Federal tax delinquency in an amount that exceeds $3,000.
    a. Change ``tax delinquency'' to ``Federal tax delinquency in an 
amount that exceeds $3000'' (9.104-5(a)(2)).
    b. Change ``delinquent taxes or unresolved tax liens'' to 
``delinquent Federal taxes in an amount that exceeds $3,000'' and 
provide detailed definition of delinquent Federal taxes (which includes 
unresolved tax liens), with examples (9.406-2(b)(1)(v), 9.407-2(a)(7), 
and comparable changes to the clauses at 52.209-5(a)(1)(i)(D) and (E) 
and 52.212-3(h)(4) and (5)).
    3. Other matters of responsibility.
    a. Move 9.408 and 9.409(a) to 9.104-5 and 9.104-6, respectively.
    b. Modify the new 9.104-5(a)(1) to require the offeror to provide 
the information it deems necessary to demonstrate its responsibility.
    c. Change the title of 52.209-5 from ``Certification Regarding 
Debarment, Suspension, Proposed Debarment, and Other Responsibility 
Matters'' to ``Certification Regarding Responsibility Matters''.
    In accordance with FAR 1.107 and Section 29 of the Office of 
Federal Procurement Policy (OFPP) Act, approval was requested to revise 
and extend the existing two non-statutory certification requirements at 
FAR 52.209-5, Certification Regarding Responsibility Matters, and FAR 
52.212-3(h), Offeror Representations and Certifications--Commercial 
Items. The Administrator for Federal Procurement Policy approved the 
request on January 16, 2008. The basis for each change and analysis of 
all public comments follows.
    1. General support for the rule.
    Comments: Three respondents express general support for the 
proposed rule.
    Response: None required.
    2. Broad arguments against inclusion of tax delinquency as 
debarment criteria.
    a. Historical.
    Comments: Two respondents comment on the inclusion of tax 
delinquency as a cause for debarment. One respondent notes that the 
Office of Management and Budget (OMB) objected to the inclusion of tax 
debts as a cause for debarment in 1988, when the Nonprocurement-Common 
Rule was finalized, on the basis that the Internal Revenue Service 
(IRS) had sufficient power and authority to collect taxes without using 
the suspension and debarment tool. The respondent suggests that it 
would be prudent for OMB to reconcile the philosophical/policy 
differences underpinning the proposed FAR case here with those 
pronounced under the Nonprocurement-Common Rule in 1988.
    Response: Since 1988, the Government Accountability Office (GAO) 
has issued various reports highlighting the fact that Federal 
contractors fail to pay their taxes, e.g.,
     Financial Management: Thousands of Civilian Agency 
Contractors Abuse the Federal Tax System with Little Consequence. GAO-
05-637 (June 2005).
     Tax Compliance: Thousands of Federal Contractors Abuse the 
Federal Tax System. GAO-07-742T (April 2007).
    The GAO concluded that contractors' failure to pay payroll taxes 
provided them with an unfair advantage in pricing their contracts.
    The letter from the Senate PSI specifically requests that the 
Federal Acquisition Regulations include criminal tax law violations and 
outstanding tax indebtedness or outstanding unresolved tax liens as 
causes for debarment.
    b. No relationship to present responsibility.
    Comment: One respondent expresses concern about using the 
suspension and debarment process as an enforcement mechanism for 
violations that have no relationship to a contractor's present 
responsibility to perform Government contracts.
    Response: A contractor's present responsibility to perform includes 
financial responsibility, as well as integrity. The rule is not 
intended as a tool to collect taxes for the IRS, but to provide 
information to the contracting officer on issues that may affect the 
contractor's responsibility.
    3. Conflict with Nonprocurement-Common Rule.
    Comment: One respondent notes that the OMB Interagency Suspension 
and

[[Page 21792]]

Debarment Committee was established by E.O. 12549 to monitor 
implementation of the Nonprocurement-Common Rule and as a vehicle of 
coordination of Federal suspension and debarment policies and 
practices. If the FAR rule is finalized, it will place the two near 
mirror image rules in conflict with one another.
    Response: Upon issuance of this final rule, the Councils believe 
that the OMB Interagency Suspension and Debarment Committee will 
consider similar changes to the Nonprocurement-Common Rule to keep the 
two rules parallel.
    4. Other information available to the Government.
    a. Government already has the necessary information.
    Comment: One respondent comments that most of the information 
requested by the rule is already available to the Federal Government. 
The respondent provides examples of ready access to IRS information, 
including the Central Contractor Registration (CCR) Taxpayer 
Identification Number (TIN) match program, Federal Payment Levy 
Program, and a recent DoD final rule requiring the contractor to notify 
the contracting officer if any tax withholding would jeopardize 
performance of a contract.
    Response: Various Federal agencies have access to some information 
originating with the IRS and regarding prospective contractors. This 
information, including a verified Taxpayer Identification Number 
disclosed to the CCR and levy information disclosed to the Financial 
Management Service in the Federal Payment Levy Program process, is not 
the same information that offerors are requested to certify under this 
rule. Contracting officers making responsibility determinations would 
not be able to deduce from a TIN, levy, or tax withholding whether a 
prospective contractor has, within a 3-year period preceding the offer, 
been convicted of or had a civil judgment rendered against them for 
violating Federal criminal tax law, or been notified of any delinquent 
Federal taxes in an amount that exceeds $3,000. To a large extent, the 
information already released to Federal agencies involved in the 
procurement process would not provide the facts important to making 
responsibility determinations.
    Furthermore, to the extent the IRS information has been disclosed 
to other Federal agencies, disclosure has been made under specific 
statutory authority allowing disclosure of the information, and use of 
the information once disclosed, to specifically identified recipients 
for specifically identified purposes. This generally does not allow the 
redisclosure or reuse of this information by the recipient for reasons 
other than that for which it was originally received. Likewise, the 
information in the IRS' control cannot be disclosed or used unless 
specifically authorized by the Internal Revenue Code (I.R.C.) (Title 26 
of the United States Code). There are both civil and criminal penalties 
attached to the unauthorized disclosure of this information by the IRS 
or, in many cases, authorized recipients. Thus even to the extent some 
information is in the hands of other Federal agencies, it cannot be 
used in making responsibility determinations.
    b. Use of other electronic systems for verification.
    Comment: One respondent states that the proposed rule needs to be 
supported by a strong system of verifications. The electronic tools are 
already in place, or could be easily modified so that the 
certifications would be more than words on paper, and this could be 
done without imposing an additional burden on law-abiding companies 
doing business with the Government. This respondent recommends that the 
Councils back up the certifications using verifications between the 
systems of flags being created in the CCR and the representations in 
the Online Representations and Certifications Application, so that 
contracting officers are immediately alerted to any discrepancies.
    Response: The respondent proposes the verification enhancement of 
requiring the contracting officer to compare and make consistent the 
CCR debt flag and the offeror's proposal certification regarding tax 
delinquencies. The Councils do not agree with this suggestion for 
several reasons. There will be numerous circumstances under which the 
two properly would be inconsistent. First, the debt flag system is 
designed to cover all types of Federal debt, not just tax 
delinquencies. Further, even if the debt flag in CCR were related to a 
Federal tax debt, it would give a contracting officer no indication 
whether an affirmative certification was required with regard to 
violation of Federal criminal tax law or Federal tax delinquency. Also, 
the Councils have relocated the former FAR 9.408 to 9.104-5, where its 
requirements to ask for additional information from the offeror and 
refer anomalies to the suspension and debarment official will be a 
regular part of the determination of present responsibility, thus 
better serving the respondent's purpose.
    5. Certification issues.
    a. Subject to additional criminal penalties.
    Comment: One respondent states that each certification makes the 
business and the individual who signs it subject to criminal penalties. 
The company is also subject to Civil False Claims Act (CFCA) double and 
treble damages, even if the violations were unintended, as the 
Government does not need to show intent to defraud; also, the standard 
of proof is only a ``preponderance of evidence''. An innocent mistake 
under another statute could lead to a CFCA violation, which could then 
lead to a determination of nonresponsibility under the new 
certification, followed by debarment and suspension proceedings.
    Response: The certification is not whether the contractor violated 
another statute, but whether the contractor has been convicted or had a 
civil judgment rendered against it, or received certain notifications.
    b. S Corporations or partnerships.
    Comment: One respondent states that the certification could be 
problematic for companies that are organized as S corporations or 
partnerships, because it is unclear under the proposed rule whether 
each shareholder or partner would be required to certify that neither 
they nor their fellow shareholders or partners has a tax delinquency. 
Given that S corporations do not file corporate tax returns, but 
instead report the company's tax liability on the individual tax 
returns on the S corporation partners, the rule could impose a 
significant level of personal information sharing among business 
partners.
    Response: The rule does not change the existing procedures for the 
certification. The existing certification at 52.209-5 and 52.212-3(h) 
is that ``(a)(1) The Offeror certifies, to the best of its knowledge 
and belief, that-- (i) The Offeror and/or any of its Principals -. . 
.''. The definition of principals is found at FAR 52.209-5, and 
includes owners and partners. The offeror already has to certify to 
whether it or its principals are debarred, suspended, proposed for 
debarment, convicted of or charged with or had a civil judgment for 
certain offenses. Individual certifications from each owner and each 
partner are not required.
    c. Application to commercial items.
    Comment: One respondent objects to the certification being imposed 
on commercial item procurements. 41 U.S.C. 430 prohibits the imposition 
of any certification for a commercial item that is not required to 
implement a statute or executive order unless the FAR Council has made 
a determination to impose the certification. The FAR

[[Page 21793]]

Council has not done so. Therefore, Part 12 acquisitions should be 
exempted.
    Response: 41 U.S.C. 430 is the statute regarding laws inapplicable 
to acquisition of commercial items. It requires a covered law enacted 
after October 13, 1994, to be included on the list of laws inapplicable 
to commercial items, unless the FAR Council makes a written 
determination. This statute does not apply, as this regulation is not 
based on statute. This statute does not prohibit application of this 
rule to acquisitions of commercial items.
    41 U.S.C. 425 is the certification statute. It forbids including a 
contractor certification in the FAR unless it is specifically imposed 
by statute, or a written justification is provided by the FAR Council 
to the Administrator of OFPP, and the Administrator approves the 
inclusion. This statute does apply. The FAR Council has obtained 
approval from the Administrator of OFPP for inclusion of this 
nonstatutory certification in the FAR.
    d. Best knowledge and belief.
    Comment: One respondent recommends that the certifications should 
include the phrase ``best knowledge and belief''.
    Response: The certifications already do include this phrase in the 
current FAR in paragraphs 52.209-5(a)(1) and 52.212-3(h). Because no 
change was proposed to these prefaces, they were not republished in the 
proposed rule.
    e. Date certain.
    Comment: One respondent recommends that the contractor be allowed 
to add a date certain, such as the end of the last calendar quarter, to 
the certification.
    Response: The Councils have elected not to add a ``date certain'' 
requirement to the certification regarding notification of delinquent 
taxes because such an addition would require more, not less, work by 
offerors. Adding a ``date certain'' requirement would effectively 
require offerors to perform a ``sweep'' prior to each certification. 
Absent a ``date certain'' requirement, offerors certify to their best 
knowledge and belief. With the additional clarifications regarding 
finality and Federal tax delinquency, offerors should be able to 
certify with confidence without having to conduct an internal 
``sweep.''
    6. New causes of suspension and debarment and required 
certification.
    a. Inclusion of ``any'' (Federal, State, local, and foreign) tax 
law violation or delinquency.
    Comments: The U.S. Small Business Administration, Office of 
Advocacy (SBA-OA) comments that the proposed rule would require a 
contractor to certify that it does or does not have a tax liability not 
just for Federal, State or local, but also foreign jurisdictions.
    Another respondent comments that the rule should clearly state 
whether the phrase ``tax laws'' refers to ``any and all'' tax laws. 
Innumerable State, local, and foreign tax statutes may be applicable to 
an offeror, depending on the size of the business, the number of 
divisions or subsidiaries, nature, and location of work being 
performed. A contractor who frequently submits proposals may not know 
on a real time basis whether any notice has been received relating to 
all the tax areas. The respondent recommends limiting the rule to 
Federal income and payroll taxes.
    Another respondent comments that because a multi-state company can 
be under audit by hundreds of Federal, State, and local taxing 
authorities at one time, such a company would find it virtually 
impossible to comply with the proposed rule. This respondent recommends 
that the rule be limited to Federal entities.
    Response: The Councils concur with the respondents and have 
narrowed the scope of the final rule to Federal tax delinquency and 
violation of Federal criminal tax laws, except for tax evasion, which 
applies to evasion of any tax, not just Federal. This should limit an 
offeror's need to know on a real-time basis whether any notice has been 
received relating to other than Federal tax areas (i.e., State, local, 
and foreign jurisdictions).
    The Councils' decision to remove State, local, and foreign tax 
violations (except for tax evasion) from the scope of this rule is 
because their inclusion would unduly burden the offerors and the 
contracting officer, who would potentially face uncertainty when 
assessing the impact of multi-jurisdictional tax violations on the 
award process.
    Although the Councils do agree to limiting to Federal criminal tax 
law violations and Federal tax delinquency, they have not specifically 
limited the final rule to address just Federal income and payroll 
taxes, although such taxes certainly constitute the bulk of Federal 
taxes. Any violation of Federal criminal tax law or Federal tax 
delinquency can affect the contractor's responsibility, regardless of 
the specific tax involved. Tracking of all Federal criminal tax 
violation or Federal tax delinquency (even if other than income or 
payroll) does not increase the complexity of the certification, but 
simplifies it.
    b. Tax evasion, violating tax law, failing to pay taxes.
    Comment: One respondent comments that the proposed rule transforms 
the precisely defined FAR Subpart 9.4, ``Debarment, Suspension and 
Ineligibility,'' inclusive of a well-defined tax code definition of tax 
evasion, into an undefined infraction called a tax liability for any 
tax law.
    Another respondent recommends deletion of the term ``tax evasion'' 
as a basis for suspension or disbarment, because ``tax evasion'' is 
covered by the new causes: ``violating tax laws'' and ``failing to pay 
taxes''.
    Response: The Councils agree that the term ``tax evasion'' is 
covered by the proposed phrases ``violating tax laws'', and ``failing 
to pay taxes'', although those phrases cover a much broader range of 
circumstances. However, the Councils also concur that the term ``tax 
evasion'' is a precisely-defined well-understood term, applicable to 
all types of taxes (Federal, state, local, and foreign) and therefore 
have retained the term. The final rule has been drafted so that the 
term ``tax evasion'' is no longer totally a subset of the subsequent 
terms.
    The term ``violating tax laws'' has been made more specific to 
cover only the violation of ``Federal criminal tax laws'' (e.g., 
willful failure to file). The FAR sections 9.406-2(a) and 9.407-2(a)(3) 
are intended to focus on criminal violations. The letter from the 
Permanent Subcommittee on Investigations specifically requested that 
the FAR should require certification with regard to criminal tax law 
violation. The decision to limit the cause for debarment/suspension to 
Federal criminal tax law violation was also based on the conclusion 
that violation of other than criminal tax laws probably has less 
bearing on contractor responsibility. Because the certification with 
regard to criminal tax law violation is restricted to Federal criminal 
tax law, it is necessary to retain ``tax evasion'' as well, which 
applies to evasion of any tax, not just Federal taxes.
    The broad circumstance covered by the phrase ``failing to pay 
taxes'' is not necessarily a criminal offense, and the Councils have 
therefore deleted it from the specified paragraphs. The non-criminal 
failure to pay taxes is subsequently covered in the rule using a more 
precisely defined term ``delinquent taxes''.
    c. Delinquent taxes - need definition.
    Comment: One respondent recommends a clear definition of 
``delinquent taxes'', which allows for due process to dispute the tax 
liability without penalty of debarment or suspension.
    Another respondent states that use of the term ``delinquent taxes'' 
significantly lowers the standard from tax evasion. Because the IRS 
does not

[[Page 21794]]

have a clear definition of ``delinquent taxes'', it is difficult to 
ensure compliance with the new standard. It is unclear how this 
definition accommodates taxpayers who are disputing tax liability.
    Another respondent recommends that the certification provide that 
an installment agreement or offer-in-compromise not be considered a 
``delinquent'' tax subject to reporting requirements. The respondent 
recommends the term ``notice of delinquency'' be deleted or defined to 
reflect the adjudication of a tax liability after due process.
    A fourth respondent recommends that the definition of ``delinquent 
taxes'' be revised to specify that all avenues of appeal have been 
closed, to allow for due process in disputing the tax liability.
    Response: The Councils agree that the definitions of ``delinquent 
taxes'' and ``tax delinquency'' need clarification. For purposes of the 
FAR rule, the definition should have two components. First, the tax 
liability should be finally determined (e.g., it is not a proposed 
liability subject to further administrative or judicial challenge and 
it has been assessed (``finality'' element)). Second, the taxpayer must 
have neglected or refused to pay a liability that has become due 
(``delinquent'' element).
    The Councils considered, as a starting point, whether the 
definition of ``delinquent taxes'' used in certain provisions of the 
I.R.C. might be useful in defining the term for purposes of this rule. 
For example, I.R.C. section 7524 requires an annual notice of tax 
delinquency be provided to a taxpayer with a ``tax delinquent 
account''. I.R.C. section 6103(l)(3) allows disclosure of return 
information to a Federal agency where an applicant for a Federal loan 
has a ``tax delinquent account''. See also Internal Revenue Manual 
11.3.29.6(8). A ``tax delinquent account'' for purposes of these 
provisions, however, is an account which shows up as being unpaid on 
the IRS computer systems. These provisions do not allow for the 
possibility for further dispute of the liability, for IRS error, or for 
whether the taxpayer is currently required to pay the liability. While 
for purposes of these provisions, this definition may be adequate, we 
agree that for purposes of this FAR rule a different definition is 
warranted.
    i. Finality.
    This definition should apply only to tax liabilities that are 
finally determined, not proposed or under valid dispute. For example, 
this would not apply to proposed deficiencies shown on a statutory 
notice of deficiency which a taxpayer is entitled to contest in Tax 
Court. The liabilities should have been assessed and should generally 
be subject to enforced collection action, such as a tax lien or levy 
(although there may be something precluding the IRS from taking 
enforced collection action, as further discussed below).
    There should be no pending administrative or judicial challenge to 
the underlying liability. An administrative or judicial challenge could 
include a refund claim, collection due process lien or levy hearing, 
deficiency case, interest or penalty abatement case, etc. In the case 
of a judicial challenge to the liability, there would be no finality 
until all judicial appeal rights have been exhausted.
    The Councils considered whether it would provide helpful 
information to the contracting officer for offerors to report in the 
certification tax liabilities that had no remaining administrative 
challenge, but might still have open avenues of judicial challenge. The 
Councils decided that to provide due process, it would be more useful 
to the contracting officer and suspending and debarring official (SDO) 
to focus on unpaid taxes for which there is no pending administrative 
or judicial challenge to the underlying liability.
    ii. Delinquency.
    If there is a finally determined tax liability, a taxpayer should 
be deemed ``delinquent'' for purposes of this definition only if that 
taxpayer has refused or neglected to pay that liability when full 
payment is due and required.
    For example, some respondents suggested that a taxpayer who has 
entered into an installment agreement or offer-in-compromise should not 
be considered to be ``delinquent''. The Councils agree. A taxpayer who 
has entered into such an agreement with the IRS is not currently 
required to make full payment of the liability.
    A taxpayer is also not delinquent in cases where the IRS is 
precluded from taking collection action, because in those cases payment 
from the taxpayer is also not currently due and required. For example, 
a taxpayer who has filed for bankruptcy protection should not be 
considered to be delinquent for purposes of this definition. (As 
discussed above, the IRS may also be precluded from taking enforced 
collection action in cases where the tax liability is not finally 
determined).
    d. Unresolved tax liens.
    Comment: One respondent states that the term ``received notice of a 
tax lien'' is too expansive or ambiguous because the notice could be 
mistaken and the lien filing could be contested. Another respondent 
states that all avenues of appeal should be allowed to dispute a filed 
notice of tax lien.
    Response: The Councils agree with these comments, but have deleted 
the references to ``unresolved tax liens'' and ``received notice of a 
tax lien'' from the final rule. It is superfluous to have separate 
certification/contractor responsibility requirements for delinquent 
taxes and for tax liens, especially since the final rule more precisely 
defines ``delinquent taxes''.
    e. Minimum threshold for reporting.
    Comments: Three respondents propose minimum thresholds. The 
respondents suggest that the wide range in amounts of tax issues and 
the various stages of administration with various authorities suggest 
the establishment of a threshold for disclosure to contracting 
officers.
     One respondent states that the value of actionable 
information to contracting officials in assessing a contractor's 
responsibility would be improved by establishing a minimum threshold 
level below which reporting would be unnecessary. The respondent points 
out that companies receive a variety of notices, often for minor 
amounts that by any reasonable standard would not call into question a 
contractor's present responsibility. They propose $25,000 as the 
threshold.
     Another respondent uses the term ``materiality'' in their 
comments and expresses a concern that a tax dispute of $100 requires 
the same certification as $1,000,000 dispute. Consequently, the 
respondent suggests use of threshold equal to the greater of $100,000 
or 1% of the contract bid amount.
     The SBA-OA suggests a minimum threshold of $2,500.
    Response: The Councils agree that both contractors and contracting 
officers will be unnecessarily burdened by the proposed rule with 
numerous disclosures that do not have a direct bearing on 
responsibility. To mitigate such a result, the Councils have set a 
minimum threshold of $3,000, consistent with the legislation that was 
favorably reported on May 9, 2007 by the Subcommittee on Government 
Management, Organization and Procurement of the House Oversight and 
Government Reform Committee (HR 1870, Towns Substitute Amendment), but 
recognizing the recent inflationary adjustment to the micro-purchase 
threshold.
    f. Increase scope of certification.
    Comment: One respondent comments that the certifications should be 
revised to address potentially criminal behavior before it is 
identified by the IRS, by asking for simple certification that the

[[Page 21795]]

company has been paying its taxes. The respondent suggests the 
additional certification should be added to both FAR 52.209-5 and 
52.212-3, which would read: ``Have [ballot], have not [ballot], paid 
all payroll and corporate taxes due.'' These certifications would 
require that the contractor affirm that it is following the law, not 
simply that the IRS hasn't caught the company breaking the law.
    Response: While the purpose of the additional proposed 
certification is well-intended, such a ``have paid'' certification 
would only present the contractor's position or perspective regarding 
its tax situation, and would not account for situations where a taxing 
authority and the contractor may be in dispute over whether or not the 
contractor has paid all taxes due. Therefore, such a certification 
would not provide the information pertinent to a responsibility 
determination. Furthermore, should a contractor check the ``have not'' 
box, it would be the other certifications that would provide more 
specific information regarding violation of Federal criminal tax laws 
or delinquent Federal taxes. Therefore, we do not believe such an 
additional certification would add any important information.
    7. What do contracting officers do upon receipt of a positive 
certification? Will ``de facto'' debarment result?
    a. Lack of clear guidance to contracting officers.
    Comment: The Small Business Administration Office of Advocacy (SBA-
OA) indicates that small businesses are concerned that the lack of 
clear guidance to contracting officers, particularly after the 
contractor has certified that the company has a tax liability, will 
create widely varying interpretations of rule.
    SBA-OA raised several questions:
     Does the affirmation of a tax liability mean the lack of 
contractor responsibility?
     Does the affirmation of a tax liability also mean the 
initiation of debarment and/or suspension provisions of the FAR?
     Is the contracting officer the only decision maker in this 
contract determination/award process?
    Another respondent comments that additional guidance is needed at 
FAR 9.408(a) to provide criteria by which contracting officers can 
assess whether a potential tax issue is of sufficient magnitude to deny 
award. The guidance should provide examples.
    Response: There is already specific guidance to the contracting 
officer in the FAR. FAR 9.103 prohibits any acquisition unless the 
contracting officer makes an affirmative determination of 
responsibility. The FAR provides the standards that the contracting 
officer is required to consider when determining contractor 
responsibility. This rule does not in any way change the process for 
determination of responsibility, just adds one more factor to consider.
    FAR 9.408 provides specific direction to the contracting officer as 
to the appropriate procedures to follow when an offeror provides an 
affirmative response to paragraph (a)(1) of the certification at 
52.209-5 or paragraph (h) of the provision 52.212-3. The contracting 
officer must--
     Request such additional information from the offeror as 
the contracting officer deems necessary in order to demonstrate the 
offeror's responsibility to the contracting officer; and
     Notify, prior to proceeding with award, in accordance with 
agency procedures, the agency official responsible for initiating 
debarment or suspension action, when an offeror indicates the existence 
of an indictment, charge, conviction, or civil judgment (now the 
Councils have also added Federal tax delinquency in an amount greater 
than $3,000).
    In order to more clearly associate these procedures to the 
responsibility determination required in FAR Subpart 9.1, these 
procedures, as well as the clause prescription for the certifications, 
have been moved to FAR 9.104.
    Furthermore, the Councils have modified the requirement to request 
such additional information as the contracting officer deems necessary. 
The Councils specify that the request should be made promptly, upon 
receipt of offers, so as not to delay the procurement, and has placed 
the burden upon the offeror to provide the information it deems 
necessary to demonstrate its responsibility. When an offeror has made 
an affirmative response to the certification, the offeror is in a 
better position to know what evidence is available to mitigate the 
response and demonstrate its responsibility.
    Several of the other revisions to the final rule, as already 
discussed, better define and limit the circumstances that require 
reporting and will eliminate many extraneous affirmations that may have 
little bearing on contractor responsibility.
     The broad phrases ``violating tax laws, failing to pay 
taxes'' have been replaced with ``violation of Federal criminal tax 
law''.
     Notification of ``delinquent'' taxes is restricted to 
delinquent Federal taxes in an amount that exceeds $3,000, and 
``delinquent'' is clearly defined, limiting applicability to tax 
liability that has been finally determined and which the taxpayer has 
not paid when it has become due, with several examples provided.
    In specific response to the SBA-OA questions--
     The affirmation of a tax liability does not necessarily 
mean the lack of contractor responsibility. A tax liability is just one 
of many factors to be evaluated by the contracting officer and, as 
appropriate, the SDO.
     The affirmation of a tax liability does not necessarily 
mean the initiation of debarment and/or suspension provisions of the 
FAR. If the contracting officer forwards information to the SDO, the 
SDO will further investigate and evaluate before deciding to initiate 
suspension or debarment proceedings.
     The contracting officer may consult with the SDO. The SDO 
may determine in advance of contract award that the contractor is 
presently responsible, although not with regard to the award of a 
particular contract.
    b. Certificate of Competency.
    Comment: SBA-OA was concerned that the unintended result of the 
rule may be denial of a Certificate of Competency (COC) ruling from SBA 
to an otherwise qualified small business.
    Response: The policy at FAR 9.103(b) is clear with regard to making 
responsibility determinations involving small businesses. If the 
prospective contractor is a small business concern, the contracting 
officer shall comply with Subpart 19.6, Certificates of Competency and 
Determinations of Responsibility. If the contracting officer determines 
that an apparent successful small business lacks certain elements of 
responsibility, the contracting officer must refer the matter to the 
SBA. The final rule does not change this policy or make any exceptions 
to compliance with Subpart 19.6, if the contracting officer determines 
that a small business lacks certain elements of responsibility based 
upon affirmative responses to the certifications. SBA's COC regulations 
currently state that if a small business concern is debarred from 
Federal procurement, proposed or suspended from Federal procurement 
pending debarment to protect the Government's interests, SBA will find 
that small business ineligible for COC consideration.
    c. De facto debarment.
    Comment: One respondent states that to subject a potential 
contractor to an informal blacklisting or a formal contracting officer 
decision of nonresponsibility repeatedly for the same condition may 
subject the Government to a legal challenge on the basis of de facto 
debarment. Generally,

[[Page 21796]]

these matters should be referred to agency suspending and debarring 
officials. The respondent recommends additional regulatory or guidance 
language to the contracting officer.
    SBA-OA questions whether the lack of clarity of the rule can result 
in the unintended de-facto denial of a contract to a small business 
bidder.
    Another respondent comments that the proposed rule is not de facto 
debarment, but simply a good way to further ensure that contractors are 
indeed responsible.
    Response: The Councils concur that this rule will not cause de 
facto debarment. This rule does not change the process at all, but just 
adds information for consideration in the determination of a 
contractor's responsibility. A contracting officer is required to make 
an affirmative determination of responsibility in accordance with the 
standards in the FAR. The rule requires the contracting officer to 
consider the new certifications relating to taxes in the certification 
at 52.209-5 or 52.212-3(h), among other information when making 
responsibility determinations.
     An affirmative response to one of the certifications does 
not necessarily mean that the contractor is not responsible. Even if 
the contractor is determined to be not responsible, that does not 
constitute a de facto debarment.
     A contracting officer is required to request additional 
information, and notify, prior to proceeding with award, in accordance 
with agency procedures, the agency official responsible for initiating 
debarment or suspension action, where an offeror indicates the 
existence of an indictment, charge, conviction, or civil judgment, or 
Federal tax delinquency in an amount that exceeds $3,000.
     Making a single determination of nonresponsibility does 
not constitute de facto debarment, as long as the contracting officer 
refers the matter to the SDO, so that the Government will not continue 
to deny awards to the offeror without the due process of the suspension 
and debarment process.
    d. Incentive for contacting officer to assume guilt.
    Comment: One respondent comments that while the proposed rule would 
not instantaneously debar a contractor nor expressly prohibit a 
contracting officer from awarding a contract to a company that informs 
the Government of the delinquent tax or unresolved tax lien 
notifications, there would be a strong incentive for the contracting 
officer to assume guilt and award the contract to another company.
    Response: The respondent does not present any evidence that there 
would be a strong incentive for contracting officers to assume guilt 
and award a contract to another company when a contractor provides an 
affirmative response to the certification at 52.209-5 or 52.212-3(h). 
The contracting officer is required to follow the regulations at FAR 
Subpart 9.1 when making a responsibility determination. In fact, the 
Councils find that a contracting officer has strong incentive not to 
assume guilt and find an offeror nonresponsible, as such irresponsible 
action would be highly likely to result in a law suit.
    However, in order to further prevent contracting officers from 
assuming anything, the final rule has been narrowed to exclude the need 
to certify with regard to unpaid taxes until there has been a final 
determination, and there are not further avenues of administrative or 
judicial appeal. This will protect offerors from having to report 
unresolved tax disputes, which may still be resolved in their favor.
    8. Small business issues.
    a. Impact on small businesses.
    i. Will hurt small businesses.
    Comments: One respondent states that because the regulations are 
unclear, and because some small businesses do not have the financial 
resources to employ lawyers or tax accountants, small businesses will 
simply certify they have a tax liability. SBA-OA was also concerned 
that without a factual basis for the certification, it is impossible 
for the approximately 300,000 small business registered in the CCR to 
fully evaluate the economic impact of the proposed regulation.
    One respondent comments that this certification could hurt 
companies that have owned up to their mistakes and paid their relevant 
tax liability, interest, and penalties, a standard which particularly 
hurts small businesses.
    Response: The basis for a certification is clearly delineated in 
the final rule. A small business can tell without hiring a tax 
accountant or lawyer whether they have been convicted of violation of 
Federal criminal tax law or have received a notice from the IRS 
regarding delinquent Federal taxes.
    If the tax liability has been satisfied, then the notification need 
not be reported in the certification. If an offeror has been convicted 
of violation of Federal criminal tax law or received notification of 
delinquent taxes for which the liability has not been satisfied, then 
that information will be evaluated on a case-by-case basis to determine 
whether the notification of delinquent taxes or conviction of violation 
of Federal criminal tax law is an indication that the offeror is not 
presently responsible.
    ii. The proposed rule will help small businesses.
    Comment: One respondent states that the organizations they 
represent vigorously support the Councils' efforts to better enforce 
the responsibility requirement for all Federal contractors. The 
respondent believes that further strengthening the electronic systems 
and FAR 9.408 will help small businesses compete.
    Response: No response required.
    b. Need reasonable alternatives for small business compliance.
    Comment: SBA-OA states that it welcomes the efforts of the Councils 
to increase corporate tax accountability, but caveats this with the 
statement that several areas of the proposed regulation require a more 
balanced approach for small businesses. The SBA-OA urges the Councils 
to give careful consideration to the need for reasonable alternatives 
for small business compliance with the proposed regulation. As one 
alternative, the respondent recommends a minimum threshold of $2,500.
    Response: As previously stated, the Councils have revised the final 
rule to make it less burdensome for all respondents, including small 
businesses:
     Limit to Federal tax delinquency and violation of Federal 
criminal tax laws (except for tax evasion).
     Clearly define ``delinquent taxes,'' limiting 
applicability to tax liability that has been finally determined and 
which the taxpayer has not paid when it has become due. To make it even 
clearer, examples are provided.
     Set a minimum threshold of $3,000 (adjusted for 
inflation).
    c. Need Initial Regulatory Flexibility Analysis.
    Comment: SBA-OA stated that an Initial Regulatory Flexibility 
Analysis is required by Section 603 of the Regulatory Flexibility Act 
when a Federal rule is expected to have a significant economic impact 
on a substantial number of small entities. The Councils stated in the 
preamble to the proposed rule that they did not expect the rule to have 
such a significant impact on a substantial number of small entities. 
SBA-OA commented that the Councils did not provide a factual basis for 
this assessment. SBA-OA stated that the rule is likely to increase the 
cost of doing business with the Government, and that due to the lack of 
clarity in the regulation, those increased costs could be significant.
    Response: The Councils worked with SBA-OA to make the impact of the 
rule

[[Page 21797]]

on small business minimal. Small businesses must already complete the 
certification at 52.209-5, including information on tax evasion. The 
new certification only requires the offeror to certify whether it has, 
or has not, within a three-year period preceding the offer, been 
convicted of violating Federal criminal tax laws or been notified of 
any delinquent Federal taxes in an amount that exceeds $3,000 for which 
the liability remains unsatisfied. This is a very clearly defined 
certification, and a small business should not have difficulty 
identifying the correct response, especially after limiting it to 
delinquent Federal taxes of which it has received notice. The small 
business is not required to assess whether there are any unpaid tax 
liabilities of which it has not been notified (as some respondents 
requested). Either it got such notice or it did not. If it got the 
notice of delinquent Federal taxes, either it satisfied the liability 
or it did not.
    After review of the final rule, SBA-OA is satisfied that the final 
rule achieves a more balanced approach for small business, and that a 
Regulatory Flexibility Analysis is not required.
    9. Ways to further improve: Waiver of privacy rights; FCTCTF to 
resolve issues; use DCAA to monitor.
    Comments: One respondent comments that the tax certification is an 
excellent idea and should also carry a waiver of privacy rights under 
I.R.C. section 6103 to permit expedited access to contractor tax 
records, parallel to the TIN matching process. The respondent also 
suggests that the joint Federal Contactor Tax Compliance Task Force 
(FCTCTF) is the perfect forum to resolve issues, and that the Defense 
Contract Audit Agency could monitor tax compliance.
    Response: No waiver of privacy rights is required, because this 
certification creates no need for Government contracting officers to 
access any IRS or other tax records or submissions. Indeed, it would be 
improper for contracting officers to do so. The function of the 
certification is to provide contracting officers with information on an 
aspect of a prospective contractor's present responsibility (as 
required by FAR Subpart 9.1). Contracting officers should not, and 
cannot, become involved in any aspect of a tax delinquency (e.g., 
collection, adjudication).
    The Councils cannot agree with the suggestion regarding the Federal 
Contactor Tax Compliance Task Force because that body's charter does 
not include resolving tax issues. Similarly, it is not part of Defense 
Contract Audit Agency's mission to monitor tax compliance.
    10. Intersection with Public Law 109-222.
    Comments: One respondent references the law (presumably referring 
to Section 511 of the Tax Increase Prevention and Reconciliation Act of 
2005, Pub. L. 109-222) requiring Federal, State and certain local 
contracting entities to withhold 3% of each payment made after December 
31, 2010. The respondent states that it strongly opposes this arbitrary 
payment withholding provision and looks forward to commenting on the 
implementing federal regulations, while simultaneously seeking a repeal 
of the law.
    Another respondent expresses its appreciation for the Councils 
seeking to address the issue of delinquent taxpayers receiving Federal 
contracts through certifications rather than the punitive withholding 
envisioned by Section 511 of Pub. L. 109-222. This respondent urges the 
Councils to seize this opportunity to make the FAR strong enough to 
obviate the need for the draconian provisions of Pub. L. 109-222, which 
affect all contractors, regardless of their compliance practices. This 
respondent points out that the construction industry, where there is 
already a practice of retainage, will suffer in particular from the 
impact of the 3% withhold. Certifications and enforcement provide a 
much more surgical approach to the problem of the tax gap. Tax 
collection should be left to the tax enforcement professionals, rather 
than contracting personnel.
    Response: While the respondents may prefer the certifications 
proposed by this rule to the withholding requirements of Pub. L. 109-
222, this rule is not an alternative to those 3% withholding 
requirements, which are statutory. Any discussion of implementation of 
that statute is outside the scope of this case.
    11. Relocation of FAR 9.408 and 9.409.
    The Councils have moved two sections, FAR 9.408 and 9.409, out of 
FAR Subpart 9.4, Debarment, Suspension, and Ineligibility, to FAR 
Subpart 9.1, Responsible Prospective Contractors, for several reasons.
    First, locating the material at FAR 9.408 does not appear to be the 
most logical placement. The Councils have moved these directions to the 
contracting officer as to what to do when an offeror makes a positive 
response to one of the certifications under FAR 52.209-5 to 9.104-5, 
under the section on standards for determining the responsibility of 
prospective contractors.
    Second, the certification no longer relates solely, or primarily, 
to suspension or debarment. It relates to broader considerations of an 
offeror's general responsibility. Thus, while certain responses on the 
certification could result in a referral to the Suspending and 
Debarring Official, the main purpose of the clause is to provide 
information that a contracting officer should use in the mandatory pre-
award determination of an offeror's present responsibility for the 
purpose of awarding a contract only to such responsible offerors, the 
subject of Subpart 9.1. In addition, the title of the clause at FAR 
52.209-5 has been shortened to the broader, and more accurate, 
``Certification Regarding Responsibility Matters.''
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq. The Councils worked with SBA-OA 
to make the impact of the rule on small business minimal. Small 
businesses must already complete the certification at FAR 52.209-5, 
including information on tax evasion. The new certification only 
requires the offeror to certify whether it has, or has not, within a 3-
year period preceding the offer, been convicted of violating Federal 
criminal tax laws or been notified of any delinquent Federal taxes in 
an amount that exceeds $3,000 for which the liability remains 
unsatisfied. This is a very clearly defined certification, and a small 
business should not have difficulty identifying the correct response, 
especially after limiting it to delinquent Federal taxes of which it 
has received notice. The small business is not required to assess 
whether there are any unpaid tax liabilities of which it has not been 
notified (as some respondents requested). Either it got such notice or 
it did not. If it got the notice of delinquent Federal taxes, either it 
satisfied the liability or it did not.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does apply; however, these changes to 
the

[[Page 21798]]

FAR do not impose additional information collection requirements to the 
paperwork burden previously approved under OMB Control Number 9000-0094 
and 9000-0136.

List of Subjects in 48 CFR Parts 4, 9, and 52

    Government procurement.

    Dated: April 4, 2008.
Al Matera,
Director, Office of Acquisition Policy.

0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 4, 9, and 52 as set 
forth below:
0
1. The authority citation for 48 CFR parts 4, 9, and 52 continues to 
read as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 4--ADMINISTRATIVE MATTERS

0
2. Amend section 4.1202 by revising paragraph (e) to read as follows:


4.1202  Solicitation provision and contract clause.

* * * * *
    (e) 52.209-5, Certification Regarding Responsibility Matters.
* * * * *

PART 9--CONTRACTOR QUALIFICATIONS

0
3. Add sections 9.104-5 and 9.104-6 to read as follows:


9.104-5  Certification regarding responsibility matters.

    (a) When an offeror provides an affirmative response in paragraph 
(a)(1) of the provision at 52.209-5, Certification Regarding 
Responsibility Matters, or paragraph (h) of provision 52.212-3, the 
contracting officer shall--
    (1) Promptly, upon receipt of offers, request such additional 
information from the offeror as the offeror deems necessary in order to 
demonstrate the offeror's responsibility to the contracting officer 
(but see 9.405); and
    (2) Notify, prior to proceeding with award, in accordance with 
agency procedures (see 9.406-3(a) and 9.407-3(a)), the agency official 
responsible for initiating debarment or suspension action, where an 
offeror indicates the existence of an indictment, charge, conviction, 
or civil judgment, or Federal tax delinquency in an amount that exceeds 
$3,000.
    (b) Offerors who do not furnish the certification or such 
information as may be requested by the contracting officer shall be 
given an opportunity to remedy the deficiency. Failure to furnish the 
certification or such information may render the offeror 
nonresponsible.


9.104-6  Solicitation provision.

    The contracting officer shall insert the provision at 52.209-5, 
Certification Regarding Responsibility Matters, in solicitations where 
the contract value is expected to exceed the simplified acquisition 
threshold.
0
4. Amend section 9.105-1 by revising paragraph (c)(3) to read as 
follows:


9.105-1  Obtaining information.

* * * * *
    (c) * * *
    (3) The prospective contractor--including bid or proposal 
information (including the certification at 52.209-5 or 52.212-3(h) 
(see 9.104-5)), questionnaire replies, financial data, information on 
production equipment, and personnel information.
* * * * *
0
5. Amend section 9.406-2 by removing from paragraph (a)(3) ``tax 
evasion,'' and adding ``tax evasion, violating Federal criminal tax 
laws,'' in its place; and by adding paragraph (b)(1)(v) to read as 
follows:


9.406-2  Causes for debarment.

* * * * *
    (b) * * *
    (1) * * *
    (v) Delinquent Federal taxes in an amount that exceeds $3,000.
    (A) Federal taxes are considered delinquent for purposes of this 
provision if both of the following criteria apply:
    (1) The tax liability is finally determined. The liability is 
finally determined if it has been assessed. A liability is not finally 
determined if there is a pending administrative or judicial challenge. 
In the case of a judicial challenge to the liability, the liability is 
not finally determined until all judicial appeal rights have been 
exhausted.
    (2) The taxpayer is delinquent in making payment. A taxpayer is 
delinquent if the taxpayer has failed to pay the tax liability when 
full payment was due and required. A taxpayer is not delinquent in 
cases where enforced collection action is precluded.
    (B) Examples. (1) The taxpayer has received a statutory notice of 
deficiency, under I.R.C. Sec.  6212, which entitles the taxpayer to 
seek Tax Court review of a proposed tax deficiency. This is not a 
delinquent tax because it is not a final tax liability. Should the 
taxpayer seek Tax Court review, this will not be a final tax liability 
until the taxpayer has exercised all judicial appeal rights.
    (2) The IRS has filed a notice of Federal tax lien with respect to 
an assessed tax liability, and the taxpayer has been issued a notice 
under I.R.C. Sec.  6320 entitling the taxpayer to request a hearing 
with the IRS Office of Appeals contesting the lien filing, and to 
further appeal to the Tax Court if the IRS determines to sustain the 
lien filing. In the course of the hearing, the taxpayer is entitled to 
contest the underlying tax liability because the taxpayer has had no 
prior opportunity to contest the liability. This is not a delinquent 
tax because it is not a final tax liability. Should the taxpayer seek 
tax court review, this will not be a final tax liability until the 
taxpayer has exercised all judicial appeal rights.
    (3) The taxpayer has entered into an installment agreement pursuant 
to I.R.C. Sec.  6159. The taxpayer is making timely payments and is in 
full compliance with the agreement terms. The taxpayer is not 
delinquent because the taxpayer is not currently required to make full 
payment.
    (4) The taxpayer has filed for bankruptcy protection. The taxpayer 
is not delinquent because enforced collection action is stayed under 11 
U.S.C. 362 (the Bankruptcy Code).
* * * * *
0
6. Amend section 9.407-2 by--
0
a. Removing from paragraph (a)(3) ``tax evasion,'' and adding ``tax 
evasion, violating Federal criminal tax laws,'' in its place;
0
b. Removing from the end of paragraph (a)(6) the word ``or'';
0
c. Redesignating paragraph (a)(7) as paragraph (a)(8); and
0
d. Adding a new paragraph (a)(7) to read as follows:


9.407-2  Causes for suspension.

    (a) * * *
    (7) Delinquent Federal taxes in an amount that exceeds $3,000. See 
the criteria at 9.406-2(b)(1)(v) for determination of when taxes are 
delinquent; or
* * * * *


9.408  [Removed and reserved]

0
7. Remove and reserve section 9.408.
0
8. Amend section 9.409 by revising the section heading; by removing 
paragraph (a); and by removing the paragraph designation (b). The 
revised heading reads as follows:


9.409  Contract clause.

* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
9. Amend section 52.209-5 by--
0
a. Revising the section heading;
0
b. Removing from the introductory paragraph ``9.409(a)'' and adding 
``9.104-6'' in its place;

[[Page 21799]]

0
c. Revising the clause heading and the date;
0
d. Removing from paragraph (a)(1)(i)(B) ``tax evasion, or receiving 
stolen property; and'' and adding ``tax evasion, violating Federal 
criminal tax laws, or receiving stolen property;'' in its place; and
0
e. Removing from the end of paragraph (a)(1)(i)(C) the period and 
adding ``; and'' in its place; and
0
f. Adding paragraph (a)(1)(i)(D) to read as follows:


52.209-5  Certification Regarding Responsibility Matters.

* * * * *
    CERTIFICATION REGARDING RESPONSIBILITY MATTERS (MAY 2008)
    (a)(1) * * *
    (i) * * *
    (D) Have [ballot], have not [ballot], within a three-year period 
preceding this offer, been notified of any delinquent Federal taxes 
in an amount that exceeds $3,000 for which the liability remains 
unsatisfied.
    (1) Federal taxes are considered delinquent if both of the 
following criteria apply:
    (i) The tax liability is finally determined. The liability is 
finally determined if it has been assessed. A liability is not 
finally determined if there is a pending administrative or judicial 
challenge. In the case of a judicial challenge to the liability, the 
liability is not finally determined until all judicial appeal rights 
have been exhausted.
    (ii) The taxpayer is delinquent in making payment. A taxpayer is 
delinquent if the taxpayer has failed to pay the tax liability when 
full payment was due and required. A taxpayer is not delinquent in 
cases where enforced collection action is precluded.
    (2) Examples. (i) The taxpayer has received a statutory notice 
of deficiency, under I.R.C. Sec.  6212, which entitles the taxpayer 
to seek Tax Court review of a proposed tax deficiency. This is not a 
delinquent tax because it is not a final tax liability. Should the 
taxpayer seek Tax Court review, this will not be a final tax 
liability until the taxpayer has exercised all judicial appeal 
rights.
    (ii) The IRS has filed a notice of Federal tax lien with respect 
to an assessed tax liability, and the taxpayer has been issued a 
notice under I.R.C. Sec.  6320 entitling the taxpayer to request a 
hearing with the IRS Office of Appeals contesting the lien filing, 
and to further appeal to the Tax Court if the IRS determines to 
sustain the lien filing. In the course of the hearing, the taxpayer 
is entitled to contest the underlying tax liability because the 
taxpayer has had no prior opportunity to contest the liability. This 
is not a delinquent tax because it is not a final tax liability. 
Should the taxpayer seek tax court review, this will not be a final 
tax liability until the taxpayer has exercised all judicial appeal 
rights.
    (iii) The taxpayer has entered into an installment agreement 
pursuant to I.R.C. Sec.  6159. The taxpayer is making timely 
payments and is in full compliance with the agreement terms. The 
taxpayer is not delinquent because the taxpayer is not currently 
required to make full payment.
    (iv) The taxpayer has filed for bankruptcy protection. The 
taxpayer is not delinquent because enforced collection action is 
stayed under 11 U.S.C. 362 (the Bankruptcy Code).
* * * * *
0
10. Amend section 52.212-3 by--
0
a. Revising the date of the clause;
0
b. Removing from paragraph (h) ``Debarment, Suspension or Ineligibility 
for Award'' and adding ``Responsibility Matters'' in its place;
0
c. Removing from the end of paragraph (h)(1) the word ``and'';
0
d. Removing from paragraph (h)(2) ``tax evasion, or receiving stolen 
property; and'' and adding ``tax evasion, violating Federal criminal 
tax laws, or receiving stolen property;'' in its place;
0
e. Removing from paragraph (h)(3) ``offenses.'' and adding ``offenses 
enumerated in paragraph (h)(2) of this clause; and'' in its place; and
0
f. Adding paragraph (h)(4) to read as follows:


52.212-3  Offeror Representations and Certifications--Commercial Items.

* * * * *
    OFFER REPRESENTATIONS AND CERTIFICATIONS--COMMERCIAL ITEMS (MAY 
2008)
* * * * *
    (h) * * *
    (4) [ballot] Have, [ballot] have not, within a three-year period 
preceding this offer, been notified of any delinquent Federal taxes 
in an amount that exceeds $3,000 for which the liability remains 
unsatisfied.
    (i) Taxes are considered delinquent if both of the following 
criteria apply:
    (A) The tax liability is finally determined. The liability is 
finally determined if it has been assessed. A liability is not 
finally determined if there is a pending administrative or judicial 
challenge. In the case of a judicial challenge to the liability, the 
liability is not finally determined until all judicial appeal rights 
have been exhausted.
    (B) The taxpayer is delinquent in making payment. A taxpayer is 
delinquent if the taxpayer has failed to pay the tax liability when 
full payment was due and required. A taxpayer is not delinquent in 
cases where enforced collection action is precluded.
    (ii) Examples. (A) The taxpayer has received a statutory notice 
of deficiency, under I.R.C. Sec.  6212, which entitles the taxpayer 
to seek Tax Court review of a proposed tax deficiency. This is not a 
delinquent tax because it is not a final tax liability. Should the 
taxpayer seek Tax Court review, this will not be a final tax 
liability until the taxpayer has exercised all judicial appeal 
rights.
    (B) The IRS has filed a notice of Federal tax lien with respect 
to an assessed tax liability, and the taxpayer has been issued a 
notice under I.R.C. Sec.  6320 entitling the taxpayer to request a 
hearing with the IRS Office of Appeals contesting the lien filing, 
and to further appeal to the Tax Court if the IRS determines to 
sustain the lien filing. In the course of the hearing, the taxpayer 
is entitled to contest the underlying tax liability because the 
taxpayer has had no prior opportunity to contest the liability. This 
is not a delinquent tax because it is not a final tax liability. 
Should the taxpayer seek tax court review, this will not be a final 
tax liability until the taxpayer has exercised all judicial app