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Companies that got stimulus money owe millions in back taxes

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Updated 4 p.m. ET

A new investigation by the Government Accountability Office finds taxpayers are getting ripped off to the tune of hundreds of millions of dollars by companies that received tens of billions of stimulus funds.

At least 3,700 contract and grant recipients of the government's 2009 effort to stimulate the economy owe more than $750 million in unpaid federal taxes.

Sen. Charles Grassley (R-Iowa) wants to block those companies from receiving new grants or contracts.

"There's no reason for the government to deal with companies that don't" pay taxes, said Grassley, who requested the report.

"A government contract is something to be earned, not something to be taken for granted," he said.

No names are given in the report, but the Senate Permanent Subcommittee on Investigations is holding a hearing on Tuesday to question Daniel Gordon, the official in charge of federal contracts at the White House Office of Management and Budget.

Read the GAO report

The companies in question received a total of $24 billion dollars in stimulus money, according to the GAO. Investigators say the actual amount of unpaid federal taxes is probably higher than the stated $750 million, because IRS databases don't include recipients who haven't bothered to file tax returns or understated their taxable income.

Among 80,000 contractors and grant recipients that GAO reviewed, investigators selected 15 recipients for further investigation and found "abusive or potentially criminal activity." Among the case studies, the amount of unpaid taxes in that group ranges from $400,000 to over $9 million. The IRS has now taken enforcement action against the selected recipients in an attempt to collect the tax dollars due.

Contractors that want business or money from the federal government must first certify that they have no tax liability. Lying about it is a serious criminal violation. However, at today's hearing, officials told senators about a maddening loophole: under privacy laws, federal contracting officers can't get information from the IRS on a grantee's tax status to find the truth. Sen. Tom Coburn (R-Okla.) said that must be fixed.

The Obama administration has said that cracking down on waste, fraud and abuse of tax dollars is a priority. The administration is said to have rules in place to address the problem, but Grassley says it's not clear how the rules are being used, and that improvements may be needed.

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