In a letter to Blackwater security firm president Erik Prince, Rep. Henry Waxman, D-Calif., charged that the company illegally dodged "millions" in payroll taxes by misclassifying its security guards as "independent contractors" rather than employees.
That way, Blackwater guards were responsible for paying their own Medicare, Social Security and unemployment taxes -- an "illegal scheme," according to Waxman, chairman of the House Committee on Oversight and Government Reform. If the firm had classified its armed guards as employees, which Waxman says it was required to do, it would have been responsible for covering those taxes.THE BLOTTER RECOMMENDS
Since May 2006, the company should have paid more than $16 million in taxes and withheld another $16 million from guards' paychecks, Waxman said.
The company disagreed.
"The Chairman's contention is incorrect," Blackwater spokesperson Anne Tyrrell said in an e-mailed statement. "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."
As evidence of Blackwater's apparent wrongdoing, Waxman pointed to an IRS ruling from March that Blackwater's classification of a guard employee as a contractor was "without merit." While that ruling came in the case of an individual Blackwater guard, the agency warned that the ruling could be expanded to cover other Blackwater personnel, according to Waxman.
In her statement, Blackwater's Tyrrell noted that the company has appealed the IRS decision, and cited a different ruling, by the U.S. Small Business Association, which she said found that "Blackwater security contractors are not employees."
Blackwater is one of three private security firms operating on behalf of the U.S. government in Iraq, but the only one to classify its guards as independent contractors, Waxman said. With more than 920 personnel in Iraq and over $1 billion in work with the U.S. government since 2001, Blackwater is the largest private security firm operating in that country on behalf of the United States.
In recent weeks, the company has been called to answer for repeated aggressive acts by its guards that have left Iraqi civilians dead and wounded. The FBI is investigating the firm, and the Iraqi government has attempted to ban it from operating in its country. The company has said its personnel have acted properly, and that it welcomes the FBI investigation.
If Waxman's allegations are true, they could be embarrassing to others besides Blackwater. Its founder, Erik Prince, has reportedly given more than $225,000 to Republican groups and candidates. Prince's vice chairman, former CIA and State Department official Cofer Black, is a senior adviser to the presidential campaign of Mitt Romney, former Republican governor of Massachusetts.