A government contract can put your company’s financial records under scrutiny from several directions. Your tax returns report revenue and payroll. Your invoices request government money. Your contract certifications make representations about your business. Investigators may examine how those records fit together.
If the records contain deliberate falsehoods, the exposure can extend beyond criminal tax charges. Prosecutors may also examine whether someone used false invoices, payroll certifications, or eligibility representations to obtain a contract or secure payment.
Having a tax problem does not automatically establish procurement fraud. But when the same conduct affects both your tax obligations and your dealings with the government, correcting a tax return may address only part of the problem.
At the Tax Law Offices of David W. Klasing, our dual-licensed Civil and Criminal Tax Defense Attorneys and CPAs can examine the financial evidence, assess potential criminal tax exposure, and coordinate a defense that accounts for related government-contract allegations. Call us at (800) 681-1295 or contact us online HERE to schedule a confidential, reduced-rate initial consultation.
A 2026 Prosecution Shows How the Charges Can Overlap
On March 17, 2026, a federal jury convicted Pittsburgh defense contractor Donald Smith of eight counts of wire fraud and five counts of failing to file corporate tax returns.
According to the Department of Justice, Smith’s scheme caused the Defense Logistics Agency to pay more than $1 million for products that differed from what Smith and his associates had promised to supply. He also failed to file corporate returns reporting the payments his company received during tax years 2019 through 2023.
IRS Criminal Investigation, the Defense Criminal Investigative Service, and the Naval Criminal Investigative Service jointly investigated the case.
The case illustrates two distinct questions: How did the business obtain the government’s money, and how did it account for that money afterward?
A defense must address both when investigators have evidence supporting both. An explanation that addresses the tax returns may leave the contract allegations unanswered. Likewise, resolving a contract dispute does not automatically resolve potential tax offenses.
The Certification You Signed May Matter as Much as the Return You Filed
Federal contracting can require representations about tax compliance and other responsibility matters. The applicable solicitation, contract provisions, and agency requirements determine what your business must disclose.
For example, FAR 52.209-5 addresses specified convictions, charges, and delinquent federal taxes. Its tax provisions contain particular definitions and conditions. A proposed tax adjustment does not automatically constitute a finally determined delinquent liability. The provision also expressly warns that a false certification may expose the maker to prosecution under the federal false-statements statute.
Another provision, FAR 52.209-11, addresses corporations with certain unpaid, assessed federal tax liabilities and recent federal felony convictions. Its requirements include qualifications concerning exhausted remedies and timely payments under an agreement with the taxing authority.
These distinctions matter. Before anyone concludes that you submitted a false certification, counsel should determine exactly what the certification asked, which entity it covered, what facts existed when you signed it, and what you knew.
An employee’s mistake, an unresolved tax dispute, and a knowingly false answer present different issues. Our attorneys and CPAs can compare the certification against the underlying tax records and communications to evaluate those differences.
Do not assume that checking a box creates no personal risk because you signed for a corporation. Knowingly and willfully making a materially false statement in a matter within federal jurisdiction can support a charge under 18 U.S.C. § 1001, which generally carries a maximum prison term of five years.
Payroll Records Can Connect the Tax Case to the Contract Case
Construction contractors and subcontractors face a particularly visible intersection between payroll reporting and contract compliance.
On projects subject to the Davis-Bacon and Related Acts, covered contractors generally must submit weekly certified payroll information. The accompanying statement addresses the accuracy and completeness of the payroll and compliance with applicable wage and fringe-benefit requirements. The Department of Labor’s Form WH-347 includes information about hours, wages, deductions, and net payments.
Consider a business that deliberately omits workers from its employment tax returns while submitting inaccurate payroll certifications for a federally funded project. Investigators may examine both the tax reporting and the contract-related representations.
The precise discrepancy matters. A legitimate difference in reporting periods does not establish fraud. Nor does every payroll error prove that someone knowingly submitted a false certification.
However, fictitious workers, fabricated hours, concealed cash wages, or knowingly false statements about compensation can require a broader defense than an ordinary payroll correction.
We can reconcile payroll registers, bank transactions, Forms W-2 and 941, certified payrolls, and project records. That review helps determine whether the government has identified a genuine inconsistency, misunderstood the accounting, or uncovered evidence that requires immediate criminal-defense attention.
Criminal Tax Charges and Civil False Claims Liability Follow Different Rules
A contractor can face criminal tax allegations alongside charges involving its government business. Each offense has its own elements.
Willful tax evasion under Section 7201 carries a maximum prison term of five years. Section 7202 likewise provides a five-year maximum for qualifying willful failures to collect or truthfully account for and pay over taxes. The government must establish the required conduct and intent; an unpaid balance alone does not establish either crime.
A scheme to obtain money or property through fraud using interstate or foreign wire communications can support wire fraud charges. The ordinary statutory maximum is 20 years per count, with higher maximums in specified circumstances. Those maximums do not predict the sentence in a particular case.
Separately, the civil False Claims Act can impose substantial liability for knowingly false claims for government payment or false records or statements material to such claims. Its knowledge standard includes actual knowledge, deliberate ignorance, and reckless disregard. It does not require proof of a specific intent to defraud. Potential consequences include treble damages and civil penalties.
One limitation deserves particular attention: the federal False Claims Act excludes claims, records, and statements made under the Internal Revenue Code. A false tax return does not become a federal False Claims Act violation merely because a government contractor filed it.
Separate fraudulent claims for contract payments can nevertheless create False Claims Act exposure when the legal requirements apply. The analysis must identify the allegedly false procurement claim and address materiality and knowledge.
For the business owner, this means that a tax defense, a criminal fraud defense, and a civil claims defense may require coordinated decisions.
Your Ability to Keep Government Work May Also Be at Stake
The consequences can reach beyond taxes, penalties, and potential imprisonment.
Federal acquisition rules identify procurement fraud, tax evasion, and other federal criminal tax violations among grounds that can support debarment. Debarment does not automatically follow every tax problem, but it can threaten a contractor’s access to future government work.
For a business that depends on public contracts, that risk can affect employees, financing, and the company’s continued operation. Owners must also consider how admissions or negotiated resolutions could affect both the company and the individuals involved.
Our role includes evaluating the tax consequences of proposed statements and resolutions and coordinating with procurement counsel where the matter requires additional contracting expertise. A decision that appears attractive in one proceeding may carry consequences in another.
Correct the Problem Without Creating a Second One
Once you discover discrepancies, preserve the original records and seek advice promptly. Do not replace historical payroll reports, backdate invoices, delete messages, or ask employees to adopt a common explanation.
A meaningful review should establish who prepared the records, who approved them, what information each person possessed, and when the business discovered the problem. Preserve contract submissions and their supporting documents alongside the accounting records.
You also need to identify any disclosure duties. When FAR 52.203-13 applies, it requires timely written disclosure to the agency’s Office of Inspector General, with a copy to the contracting officer, of credible evidence of specified federal criminal violations or civil False Claims Act violations connected to the contract or covered subcontracts. The clause also preserves specified privilege and constitutional protections.
Even when that clause does not apply, a principal’s knowing failure to disclose certain credible evidence can create suspension or debarment exposure under the acquisition rules. Waiting for investigators to contact you is not a universally safe response.
Our team can help evaluate the tax issues while coordinating the timing, content, and recipients of any required contract-related disclosures. Legal review should support timely compliance and informed decisions.
An amended return does not provide immunity from a completed offense. Nor should a contractor assume that the IRS’s Voluntary Disclosure Practice resolves separate procurement fraud. The IRS does not guarantee immunity through that practice, and eligibility depends on the circumstances, including timing.
Bring the Tax Records and the Government’s Questions to One Coordinated Defense at the Tax Law Offices of David W. Klasing
If an IRS agent, inspector general, contracting officer, or prosecutor asks about discrepancies, the scope of the questions matters. Requests concerning payroll certifications, contract eligibility, subcontractor invoices, or the destination of government payments may require attention beyond the tax return itself.
At the Tax Law Offices of David W. Klasing, our dual-licensed Civil and Criminal Tax Attorneys and CPAs can reconstruct the financial transactions, test the government’s tax calculations, assess evidence of willfulness, and prepare you for consequential decisions about interviews, document production, corrections, and defense strategy.
We can also examine whether the company’s interests differ from those of an owner, officer, or employee. One person’s explanation may affect another person’s exposure, making representation decisions important from the outset.
If your government-contract records and tax filings raise questions, obtain advice before submitting an explanation that you cannot support. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 or contact us online to schedule a confidential, reduced-rate initial consultation. We can evaluate the criminal tax risks and help coordinate the response your circumstances require.
