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Kerry Weighs In On Blackwater Debate

by Carla Johnson, Investors, London

29 October 2007

Senator John Kerry has this week pressed for more information about Blackwater USA’s alleged tax evasion.

The private security firm has been under fire for classifying some of its workers as independent contractors rather than employees, in order to reduce its tax liabilities.

As a senior member of the Finance Committee, Kerry sent a letter to the Committee’s leadership requesting an investigation be conducted into Blackwater’s tax filings.

Blackwater USA, the private security firm operating in Iraq and Afghanistan, recently strenuously denied an accusation levelled by senior Democrat lawmaker Henry Waxman that it evaded federal taxes by treating its staff as contractors rather than employees.

Waxman, Chairman of the Oversight Committee, argued that Blackwater may have engaged in "significant tax evasion" by failing to withhold and pay millions of dollars in Social Security, Medicare, unemployment, and related taxes. Waxman also alleged that the firm sought to conceal its conduct from Congress and law enforcement officials.

Kerry, also Chairman of the Committee on Small Business and Entrepreneurship, has weighed in on the debate, calling on Blackwater to explain their recent decision to use the Small Business Administration’s (SBA) classification of their employees for tax purposes.

Earlier this week, Kerry asked the SBA to provide documentation on any rulings made on Blackwater. In a letter to Kerry, SBA Administrator Steven Preston wrote that:

“SBA’s size determinations are solely for the purposes of ascertaining eligibility for our small business programs and have no applicability to tax liability matters.”

In a further letter sent by Kerry to sent to Senators Max Baucus (D-Mont.), and Charles Grassley (R-Iowa), Chairman and Ranking Member of the Committee on Finance, and to Erik Prince, Chairman of Prince Group, the parent company of Blackwater USA, the Senator argued that:

"I am troubled that Blackwater erroneously and inappropriately relied on an SBA size determination for the classification of its workers. SBA incorporates IRS tax criteria as an element in whether personnel are employees for determination of size. In March 2007, the IRS issued a letter to Blackwater ruling that it improperly misclassified a security guard in Afghanistan as an independent contractor. I am concerned that Blackwater is misclassifying its personnel for tax purposes."

"Since the Finance Committee has jurisdiction over revenue matters generally, I request that our Committee conduct an investigation of Blackwater to determine if they are evading taxes due to the erroneous misclassification of workers. I share your concerns about the tax gap and believe that the misclassification of workers is a contributing factor and that it is an issue which the Finance Committee should address."

A statement issued earlier this month by Blackwater stated: "The criteria used by the IRS for Federal income tax purpose shows that Blackwater security contractors are not employees."

"It is unfortunate that the Chairman has relied upon a one-sided description of the issue to color public perception without all the facts being presented."

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