Kerry sends letter to Erik Prince requesting documents

10/26/2007

Kerry Demands Investigation of Blackwater Tax Filings

Rather Than Hide Behind Bush Administration, Blackwater Should Come Clean on Taxes

WASHINGTON—Today Senator John Kerry (D-Mass.), pressed for more information about Blackwater USA’s alleged tax evasion. The private security firm has been under fire for hiding behind a Bush Administration business size ruling that classified some of their workers as independent contractors rather than employees to avoid paying at least $31 million in taxes. 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.


Kerry, also Chairman of the Committee on Small Business and Entrepreneurship, called on Blackwater to explain their 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, “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.”


The text of the letters sent to the Senators Max Baucus (D-Mont.), and Charles Grassley (R-Iowa), Chairman and Ranking Member of the Committee on Finance and to Mr. Erik Prince, Chairman of Prince Group, the parent company of Blackwater USA, are below:


October 26, 2007
The Honorable Max Baucus
Chairman
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510


The Honorable Charles Grassley
Ranking Member
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510


Dear Senators Baucus and Grassley:


Earlier in the week, I sent a letter to Small Business Administrator Stephen C. Preston regarding a press release issued by Blackwater Worldwide in response to House Committee on Oversight and Government Chairman’s Waxman inquiry about possible tax evasion by Blackwater Security Consulting, LLC. The letter inquired about the following statement by Blackwater: “The U.S. Small Business Administration has determined in an official finding applying ‘the criteria used by the IRS for Federal income purpose,’ that ‘Blackwater security contractors are not employees.’’’


I received a prompt response from SBA Administrator Preston indicating that the Small Business Administration issued a size determination regarding Presidential Airways, an affiliate of Blackwater. As expected, the letter states that “…SBA’s size determinations are solely for the purpose of ascertaining eligibility for our small business programs and have no applicability to tax liability matters.”


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.


I am enclosing for your reference the letter I sent to the SBA and the response. In addition, I am enclosing a letter that I sent to Blackwater inquiring why they relied upon a SBA size determination for tax purposes.


Thank you in advance for consideration of this important issue. Please keep me apprised of actions on this issue and let me know if you need any additional information from the Senate Committee on Small Business and Entrepreneurship.


Sincerely,


John F. Kerry
Chairman



--------------------------------------------------------------------------------


October 26, 2007


Mr. Erik Prince Chairman
The Prince Group
1650 Tyson Boulevard, Suite 800
McLean, VA 22102


Dear Mr. Prince:


Earlier in the week, I sent a letter to Small Business Administrator Stephen C. Preston regarding a press release issued by Blackwater Worldwide in response to House Committee on Oversight and Government Chairman’s Waxman inquiry about possible tax evasion by Blackwater Security Consulting, LLC. The letter inquired about the following statement by Blackwater: “The U.S. Small Business Administration has determined in an official finding applying ‘the criteria used by the IRS for Federal income purpose,’ that ‘Blackwater security contractors are not employees.’’’


I received a prompt response from SBA Administrator Preston indicating that the Small Business Administration issued a size determination regarding Presidential Airways, an affiliate of Blackwater. As expected, the letter states that “…SBA’s size determinations are solely for the purpose of ascertaining eligibility for our small business programs and have no applicability to tax liability matters.”


I would like to know why Blackwater relied on or referenced an SBA size determination for classifying its workers for tax purposes. Please send me any documents related to the SBA size determination and your classification of workers as employees for tax purposes,an explanation of the chain of command of Blackwater workers who are deployed in Iraq and Afghanistan, and the status of any IRS audit of Blackwater and any related companies.


Thank you in advance for your cooperation.


Sincerely,



John F. Kerry
Chairman

Obama, Durbin, Kerry Call for Investigations of Alleged Blackwater Tax Dodge

By Paul Kiel - October 26, 2007, 2:49PM

The mad proliferation of Blackwater investigations continues.

Earlier this week, House sleuth Henry Waxman (D-CA) accused Blackwater of hiding "tens of millions of dollars, if not more" in Social Security, Medicare and retirement taxes by classifying its security guards in Iraq as independent contractors.

Today, Sens. Barack Obama (D-IL), Dick Durbin (D-IL), and Sen. John Kerry (D-MA) piled on, asking for investigations of Blackwater's alleged tax dodge.

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As for Kerry, he wants the Senate Finance Committee, of which he's a member, to dig in and investigate too. So he wrote Chairman Max Baucus (R-MT) and ranking member Chuck Grassley (R-IA) to request an investigation.

All of the senators don't think much of Blackwater's reliance on a determination by the Small Business Administration that they could classify guards as independent contractors. First of all, as Spencer reported earlier this week, the SBA determination only dealt with an employee in Guam. More importantly, the SBA says it carries "no legal weight."

Unfortunately for Blackwater, Kerry is also the Chairman of the Committee on Small Business and Entrepreneurship, and he's on the case. Now he wants Blackwater to explain what the SBA finding has to do with anything. His letter to Prince, sent today, is also below.

Obama and Durbin's letter to U.S. Treasury Secretary Henry M. Paulson:

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