Blackwater accused of evading federal tax

MSNBC

Blackwater USA, the security firm that has come under intense scrutiny on Capitol Hill after a September 16 incident in which it allegedly opened fire on Iraqi civilians and killed 17, was accused on Monday by a senior Democratic lawmaker of evading tens of millions of dollars in federal taxes.

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

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

The arrangement has, according to Mr Waxman, wrongly allowed Blackwater to avoid paying social security and medicare taxes, as well as federal income and unemployment tax - or roughly $32m in taxes from May 2006 to March 2007.

The IRS ruling was issued after a single security guard approached the tax authority after a dispute over back pay and other compensation. Although the ruling, which is based on Blackwater exercising control over its worker, applied only to the individual, the IRS alerted Blackwater that it could apply to others.

Blackwater, which has classified 604 security guards as contractors, agreed a settlement with the employee after the ruling. That included a confidentiality agreement which prohibited the employee from contacting "any politician" or "public official" about its details.

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

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

Blackwater said in a statement that Mr Waxman's assertions were "incorrect" and took issue with his use of the IRS decision, which the company has appealed.

The company said the IRS had not made a final determination on the employee and the Small Business Administration had decided Blackwater security contractors were not employees.

"It is unfortunate that the chairman has relied upon a one-sided description of the issue to colour public perception," Blackwater said.