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MAPPS Opposes 3% Withholding on Federal Contracts at IRS Public Hearing

Posted By Nick Palatiello, Thursday, September 15, 2011
On September 12 MAPPS Executive Director John Palatiello was one of five witnesses who testified at a public hearing by the Internal Revenue Service (IRS) entitled, "Withholding on Payments by Government Entities to Persons Providing Property or Services.” The hearing was to address legislation enacted by Congress calling for a 3 percent withholding on all federal contracts, including mapping, surveying and geospatial activities, with the IRS in charge of implementing regulations on  section 3402(t) of the Internal Revenue Code.

Palatiello reiterated MAPPS opposition to the 3 percent withholding. He said even with a recent change in the Federal Acquisition Regulation (section 52.232-10), A/E firms, including those in surveying and mapping, still face a potential retainage or withholding of 13 percent on Federal contracts, an amount often in excess of the net profit. He said small business cannot afford to be in the banking business, making interest free loans to the federal government. He also said the withholding will drive firms out of the Federal contracting market at a time when we should be encouraging more competition.

As a means to help business, Palatiello urged that all long-term contracts be grandfathered. In particular, an indefinite delivery/indefinite quantity (ID/IQ) contract should be grandfathered, and the 3%withholding should not apply to any task order entered into or against the ID/IQ contract after the effective date of the IRS regulation.  The same policy should apply to other types of contract vehicles, such as GSA Schedule and Basic Ordering Agreements (BOAs), he told the IRS.

In 2009, MAPPS testified at an IRS oversight hearing opposing 3 percent withholding.

MAPPS is a member of the Government Withholding Coalition (the Coalition), led by the U.S. Chamber of Commerce. The Coalition was formed to seek repeal of Section 511 of Public Law No. 109-222, which mandates the sweeping new requirement that federal, sate and local governments withhold 3% of their payments for goods and services (the government withholding regime).

Currently there is bi-partisan support in Congress to repeal the withholding. H.R. 674 and S. 164 are intended to "amend the Internal Revenue Code of 1986 to repeal the imposition of 3 percent withholding on certain payments made to vendors by government entities.” The bills are cosponsored by a bipartisan group of 250 members of the U.S. House of Representatives and 21 U.S. Senators. This legislation is a priority for the Republican leadership in the House and is scheduled to be debated this fall. President Obama has included a delay in the effective date of the withholding in his recently unveiled jobs package.

Tags:  3% withholding  Congress  Contracts  IRS  Tax 

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