Limiting the Right of Offset: Is it the Start of a New Trend?

Article provided by © 2020, Smith, Currie & Hancock LLP
Limiting the Right of Offset: Is it the Start of a New Trend?
LAUREN P. MCLAUGHLIN

Partner

Tysons, Virginia

T: 703.506.1990

E: lpmclaughlin@smithcurrie.com

Limiting the Right of Offset: Is it the Start of a New Trend?

RAZIYE ANDICAN

Associate

Tysons, Virginia

T: 703.506.1990

E: randican@smithcurrie.com

Disputes frequently arise at the end of a project between subcontractors and general contractors regarding offset. For contractors who have engaged a particular subcontractor on more than one project, they might be reticent to release final payment or retention on one job when they know the subcontractor is having performance issues on another project. In that instance, they might withhold money on one job to offset the anticipated problems on another job. For subcontractors, there are few instances more frustrating than when a general contractor unexpectedly delays final payment or retainage rightfully owed on a project by asserting previously undisclosed potential backcharges on a separate project. When this issue crops up, parties first look to their contracts.

All subcontracts allow a general contractor to deduct backcharges against a subcontractor for its alleged defective work on a project. Some subcontracts go further and expressly allow the general contractor to offset payment due under one contract as purported compensation for a claim that it has asserted against the same subcontractor on another contract. The standard setoff clause looks like this:

Contractor may withhold amounts otherwise due under this Subcontract or any other agreement between the parties to cover Contractor’s reasonable estimate of any costs or liability Contractor has incurred or may incur for which Subcontractor may be responsible under this Subcontract or any other agreement between the parties.

Depending on whether your contract contains the above, there are also statutes in place that limit or affect a contractor’s right of offset. Below is a brief synopsis of how the right of offset has been limited in Virginia, Maryland, and the District of Columbia, and the applicability of such terms depending on whether the project is public or private.

Virginia

1.     Private Projects – OFFSET NOT ALLOWED

For decades, Virginia courts have allowed general contractors the right to offset sums owed subcontractors on other projects.  That right of offset will now change for private contracts, because effective July 1, 2020, any contract provision allowing a party to withhold funds due on one contract or subcontract for alleged claims or damages due on another contract or subcontract is void as against public policy. This amendment will be made to Virginia’s mechanics’ lien statute § 43-13 titled “Funds paid to general contractor or subcontractor must be used to pay persons performing labor or material.” This section of Virginia’s mechanics’ lien statute also clarifies that funds paid to a general contractor or subcontractor must be used to pay persons performing labor or furnishing material on that project. The law does not in any way affect or impair the general contractor’s right to backcharge for failure to properly perform work or furnish materials.

Subcontractors and general contractors should take notice of this new law in Virginia for several reasons: (1) so that those in the company responsible for negotiating contracts after July 1, 2020 can make reference to the new law to effectively strike such clauses going forward; and (2) general contractors should be wary of attempting to offset monies owed on one project with another because a subcontractor can refute the offset with the new statute.

This new statute is a major change in Virginia where “contract is king” and historically, Virginia courts are loathe to read out of a contract something the parties expressly bargained for.1

2.     Public Projects in Virginia – OFFSET ALLOWED*

For those working on state projects, the next question is whether this new anti-offset statute applies on projects for the Commonwealth.  This new statute is silent on whether it applies to public contracts in Virginia, but the more compelling reason offset is likely still permitted on state jobs is because the new law was enacted in the mechanic’s lien code (applicable only on private jobs). In addition, there is no corresponding anti-offset statute in the Virginia Public Procurement Act or the Virginia Prompt Payment Act.

However, here’s the reason for the asterisk. Virginia has another relatively new statute that has yet been untested, which could arguably be used to challenge an offset clause as null and void. Section 11-4.1:1 of the Virginia Code states that any provision that waives or diminishes a subcontractor’s right to claim “demonstrated costs” executed before the subcontractor performs work is null and void. Arguably, an offset clause “diminishes” a subcontractor’s right to claim demonstrated costs. Again, this is a relatively newer statute that no one has litigated. Additionally, proposed new legislation in Virginia regarding pay-if-paid “condition precedent” language may also serve as a means to argue the invalidity of the right of offset on public projects in Virginia.

For now, absent any other legislative actions, the right of offset on public projects in Virginia appears unaffected by the new law. However, the tide may be turning in that two other statutes pending and enacted may limit the general contractor’s right to offset in Virginia.

Maryland

Private and Public Projects – OFFSET NOT ALLOWED

In Maryland, a general contractor does not have the right to setoff because of Maryland’s construction trust fund statute that applies to both public and private jobs, Md. Code Ann., Real Prop. §§ 9-201, et seq.  This statute requires that any funds paid under a contract by an owner to a contractor or an owner or contractor to a subcontractor shall be held in trust for those subcontractors who did the work or furnished the materials. It essentially means you cannot have a “global accounting” with one subcontractor on different projects. Again, if a subcontractor is working on multiple projects for the state of Maryland, the general contractor cannot offset payments owed on one job for another. The same analysis applies on private projects, but does not apply to federal projects. See id. at § 9-204. If a contractor receives trust fund monies paid from a particular project, the contractor is obliged to apply the funds to invoices for labor or materials supplied for that particular project. See Insurance Co. of N. Am. v. Genstar Prods. Co., 338 Md. 161 (1995).

District of Columbia – OFFSET ALLOWED

Unlike Virginia and Maryland, the District of Columbia does not have any specific statute in place regarding offset on construction projects.  The absence of any statute voiding offset provisions means that the right of a general contractor to offset is arguably permissible and allowable in D.C., if provided for in the contract. This means subcontractors need to exercise heightened care in reviewing subcontracts to strike clauses allowing offset, and general contractors have the right to enforce this contract provision. If any party has an offset provision in a contract, they should expect that it will be enforced in the District of Columbia for both private and state projects.

Federal Projects – OFFSET ALLOWED

On federal projects, the government’s right to offset is expansive and set forth in the Federal Acquisition Regulations. In addition, the government has a federal common law right of setoff. However, the right to setoff may be limited in the context of when a surety steps in to complete the bonded obligations of its principal – general contractor or subcontractor.  As explained below, two cases from the Eastern District of Virginia limited the right of setoff on federal jobs when completion sureties were involved.

For instance, in United States ex rel. Acoustical Concepts, Inc. v. Travelers Casualty & Surety Company of America, 635 F.Supp.2d 434 (E.D. Va. 2009), the Eastern District of Virginia held that a subcontractor’s Miller Act rights were superior to the surety’s right to assert a contractual right to setoff arising out of a non-federal project.  Subcontractors should take note of this ruling that despite language in the general contractor’s contract, the Court disallowed setoff where the subcontractor had a valid payment bond claim under the Miller Act. The takeaway from this case is that a surety is not entitled to offset amounts due on a bonded project with a non-bonded project.  The Court did not say whether offset may be allowed among multiple bonded jobs.

Similarly, in The Hanover Insurance Company v. Blueridge General, Inc., No. 2:12CV698, 2013 WL 4590568 (E.D. Va. Aug. 28, 2013), the court found that a general contractor who had multiple projects with a subcontractor could not assert setoff against the subcontractor’s completion surety (after the subcontractor’s default) with claims it had against the subcontractor on other private projects. In other words, setoff is not likely permissible against a subcontractor’s performance bond surety. Although they stand in the shoes of their principal (defaulting subcontractor) the surety’s rights and duties only extend to their bonded obligations and not for alleged defaults on unbonded projects.

TAKEAWAYS ~ ARE THE WINDS BLOWING TO LIMIT OFFSET?

Establishing the right of offset in your standard subcontracts is no longer enough. General contractors must be cognizant that the right of offset is jurisdiction specific. While the information provided above pertains only to the DC area, contractors should have their counsel identify those judicially-created limitations on offset in every project location they are operating.  Be mindful that while some states have trust fund statutes, which means you should exercise caution before offsetting (CO, DE, IL, MD, MI, MN, NY, NJ, OK, SC, SD, TX, VT, WA, WI); other states will now refuse to enforce that contract term for public policy reasons. In answer to the question above as to which way the winds are blowing, consider that the subcontractor community was successful in passing this statute in Virginia where contract is typically considered “king” and bargained-for contract terms are almost always enforced.

_____________________________________________________________

1 Keep in mind that if a contractor and subcontractor file suit against each other or arbitrate or mediate a number of project disputes in the same forum, both parties are entitled to “offset” against amounts owed in a court proceeding. They cannot offset as a means of “contract accounting” during the project.
2 The surety’s status as a performing surety subrogated the obligee’s rights to the remaining subcontract balance and the general contractor’s right to setoff failed.

From the Editor

It is not unusual for subcontracts to contain language that allows the prime to offset payments on one project as compensation for claims it has against that same subcontractor on another project. Whether these provisions are enforceable, however, often depends on the statutory schemes and policy objectives of the particular jurisdiction of the project. In this article, Lauren McLaughlin and Raziye Andican of the Tysons office examine specific examples of the interplay of statutory law and policy with these clauses and discuss trends that may be developing.

Battling the General Contractor’s Right to Offset in Virginia, Maryland, and the District of Columbia:

May 14, 2020      Right of Offset Document

A scorecard for the subcontractor community

By: Lauren P. McLaughlin, Esq. and Raziye Andican, Esq.

For subcontractors, there are few instances more frustrating than receiving an unexpected and previously-undisclosed list of backcharges that are being deducted from the final payment due and owing to your company.  Even more distressing is the scenario when a general contractor delays payment rightfully owed to a subcontractor by asserting backcharges allegedly owed on a separate project.

All subcontracts allow a general contractor to deduct backcharges against a subcontractor for its alleged defective work on a project. Some subcontracts go further and expressly allow the general contractor to offset payment due under one contract as purported compensation for a claim that it has asserted against the same subcontractor on another contract. Here is a standard setoff clause that should serve as an example of a “trap for the unwary”:

Contractor may withhold amounts otherwise due under this Subcontract or any other agreement between the parties to cover Contractor’s reasonable estimate of any costs or liability Contractor has incurred or may incur for which Subcontractor may be responsible under this Subcontract or any other agreement between the parties.

The bolded and underlined text is never so conspicuous in the contract, so subcontractors need to be aware of and negotiate this kind of clause out of their agreement, or at least negotiate and strike the last part of the clause.

The American Subcontractors Association of Metro Washington has actively and successfully sought to pass legislation in the surrounding DMV region to render these kinds of provisions void and unenforceable, even if they do wind up in your agreements.  Below is a brief synopsis of how the right of offset has been limited in Virginia, Maryland, and DC and the applicability of such terms depending on whether the project is public or private.

Virginia

  1. Private Projects – OFFSET NOT ALLOWED

For decades, Virginia courts have allowed general contractors the right to offset sums owed subcontractors on other projects.  That right of offset will now change for private contracts, because effective July 1, 2020, any contract provision allowing a party to withhold funds due on one contract or subcontract for alleged claims or damages due on another contract or subcontract is void as against public policy. This amendment will be made to Virginia’s mechanics’ lien statute § 43-13 titled “Funds paid to general contractor or subcontractor must be used to pay persons performing labor or material.”[1]

Why is this important for my company? Subcontractors should take notice of this new law in Virginia for several reasons: (1) so that those in your company responsible for negotiating contracts with general contractor clients after July 1, 2020 can make reference to the new law to effectively strike such clauses going forward; (2) to the extent a general contractor attempts to offset monies owed on one project with another, a subcontractor can refute the offset with the new statute; and (3) to the extent a subcontractor has offset language in its own downstream sub-sub-contracts, this provision (and practice) is no longer enforceable.

This new statute is a major change in Virginia where “contract is king” and historically, Virginia courts are loathe to read out of a contract something the parties expressly bargained for.[2]

  1. Public Projects in Virginia – OFFSET ALLOWED*

For those working on state projects, the next question is whether this new anti-offset statute applies on projects for the Commonwealth.  This new statute is silent on whether it applies to public contracts in Virginia, but the more compelling reason offset is likely still permitted on state jobs is because the new law was enacted in the mechanic’s lien code (applicable only on private jobs). In addition, there is no corresponding anti-offset statute in the Virginia Public Procurement Act or the Virginia Prompt Payment Act.

However, here’s the reason for the asterisk. Virginia has another relatively new statute that has yet been untested, which could arguably be used to challenge an offset clause as null and void. Section 11-4.1:1 of the Virginia Code states that any provision that waives or diminishes a subcontractor’s right to claim “demonstrated costs” executed before the subcontractor performs work is null and void. Arguably, an offset clause “diminishes” a subcontractor’s right to claim demonstrated costs. Again, this is a relatively newer statute that no one has litigated. Additionally, proposed new legislation in Virginia regarding pay-if-paid “condition precedent” language may also serve as a means to argue the invalidity of the right of offset on public projects in Virginia.

For now, absent any other legislative actions, the right of offset on public projects in Virginia appears unaffected by the new law. However, the tide may be turning in that two other statutes pending and enacted may limit the general contractor’s right to offset in Virginia.

Maryland

Private and Public Projects – OFFSET NOT ALLOWED

In Maryland, a general contractor does not have the right to setoff because of Maryland’s construction trust fund statute that applies to both public and private jobs, Md. Code Ann., Real Prop. §§ 9-201, et seq.  This statute requires that any funds paid under a contract by an owner to a contractor or an owner or contractor to a subcontractor shall be held in trust for those subcontractors who did the work or furnished the materials. It essentially means you cannot have a “global accounting” with one subcontractor on different projects. Again, if a subcontractor is working on multiple projects for the state of Maryland, the general contractor cannot offset payments owed on one job for another. The same analysis applies on private projects, but does not apply to federal projects. See id. at § 9-204. If a contractor receives trust fund monies paid from a particular project, the contractor is obliged to apply the funds to invoices for labor or materials supplied for that particular project. See Insurance Co. of N. Am. v. Genstar Prods. Co., 338 Md. 161 (1995).

District of Columbia OFFSET ALLOWED

Unlike Virginia and Maryland, the District of Columbia does not have any specific statute in place regarding offset on construction projects.  The absence of any statute voiding offset provisions means that the right of a general contractor to offset is arguably permissible and allowable in D.C., if provided for in the contract. This means subcontractors need to exercise heightened care in reviewing subcontracts to strike clauses allowing offset. ASAMW will actively seek to lobby the District to enact similar legislation, but if any party has an offset provision in a contract, they should expect that it will be enforced in the District of Columbia for both private and state projects.

Federal ProjectsOFFSET ALLOWED

On federal projects, the government’s right to offset is expansive and set forth in the Federal Acquisition Regulations. In addition, the government has a federal common law right of setoff. However, the right to setoff may be limited in the context of when a surety steps in to complete the bonded obligations of its principal – general contractor or subcontractor.  As explained below, two cases from the Eastern District of Virginia limited the right of setoff on federal jobs when completion sureties were involved.

For instance, in United States ex rel. Acoustical Concepts, Inc. v. Travelers Casualty & Surety Company of America, 635 F.Supp.2d 434 (E.D. Va. 2009), the Eastern District of Virginia held that a subcontractor’s Miller Act rights were superior to the surety’s right to assert a contractual right to setoff arising out of a non-federal project.  Subcontractors should take note of this ruling that despite language in the general contractor’s contract, the Court disallowed setoff where the subcontractor had a valid payment bond claim under the Miller Act. The takeaway from this case is that a surety is not entitled to offset amounts due on a bonded project with a non-bonded project.  The Court did not say whether offset may be allowed among multiple bonded jobs.

Similarly, in The Hanover Insurance Company v. Blueridge General, Inc., No. 2:12CV698, 2013 WL 4590568 (E.D. Va. Aug. 28, 2013), the court found that a general contractor who had multiple projects with a subcontractor could not assert setoff against the subcontractor’s completion surety (after the subcontractor’s default) with claims it had against the subcontractor on other private projects. In other words, setoff is not likely permissible against a subcontractor’s performance bond surety. Although they stand in the shoes of their principal (defaulting subcontractor) the surety’s rights and duties only extend to their bonded obligations and not for alleged defaults on unbonded projects.[3]

 

 

 

[1] This section of Virginia’s mechanics’ lien statute also clarifies that funds paid to a general contractor or subcontractor must be used to pay persons performing labor or furnishing material on that project. The law does not in any way affect or impair the general contractor’s right to backcharge for failure to properly perform work or furnish materials.

[2] Keep in mind that if a contractor and subcontractor file suit against each other or arbitrate or mediate a number of project disputes in the same forum, both parties are entitled to “offset” against amounts owed in a court proceeding. They cannot offset as a means of “contract accounting” during the project.

[3] The surety’s status as a performing surety subrogated the obligee’s rights to the remaining subcontract balance and the general contractor’s right to setoff failed.

Sorting Out Worker Misclassification

December 16, 2019

EC&M    CONSTRUCTION

Sorting Out Worker Misclassification

The increase in gig workers has more companies testing the teeth of worker misclassification rules. They’re about to come under the gun in California, but some construction contractor practices may get a pass.

Tom Zind | Nov 18, 2019

It’s a match made in heaven — at least on paper: workers who increasingly long to be “free agents” and employers who salivate at the prospect of reducing the many costs that come with maintaining traditional employees. That’s the recipe for the possible growth of the “gig economy,” in which more workers move from being employees to independent contractors, ostensibly handing workers the freedom and flexibility many crave while freeing employers from some of the financial burdens of being, well, employers.

Some of the allure of gig work has been abating as workers complain of exploitation — such as Uber drivers — and employers rediscover the management advantages of having full-time, dedicated employees. But independent contractor arrangements continue to be a force in the evolving labor economy — nowhere more so perhaps than in the construction contractor sector, where the practice has a long history.

Related: NECA Supports Legislation to Curtail Worker Misclassification

 

 

 

 

 

 

 

Broadly, though, it’s drawn the probing, wary eyes of legislators, regulators, and even prosecutors, who are lifting the hood to find loads of trouble in worker’s paradise: namely, that many workers are actually being taken advantage of by companies breaking labor laws, cheating on pay, not paying their fair share of taxes, and fostering an uneven playing field in their industries.

Related: 2019 Electrical Salary Survey and Career Report

At issue is worker misclassification, describing when workers enter into labor arrangements that bear all the marks of a standard employer-employee relationship but are treated as off-payroll, independent, self-employed contractors. Doing so frees companies from paying the employer’s share of payroll taxes, unemployment and workmen’s compensation insurance premiums, and extending benefits such as health insurance and overtime pay.

(more…)

New Jersey Passes the Broadest Wage Theft Law in Country With Dire Consequences for Employers – Attorney Advertising

August 12, 2019

 

Introduction: On the heels of the broadest Pay Equity law in the country, New Jersey has just passed the broadest wage theft law in the country, which is certain to lead to increased litigation. Unwary employers may not only be facing insurmountable fines and penalties, but potentially jail time for even minor violations of the new law. The new law establishes treble damages and criminal penalties for non-payment of wages to New Jersey employees. More importantly, there is a presumption of retaliation for any adverse employment action that occurs for months after an employee complains about their wages. The presumption is rebuttable, but only if the employer produces clear and convincing evidence. The law further extends the statute of limitations to six years and allows for reinstatement of employees.
Under New Jersey’s Wage Theft Act (the “Act”), employees who prevail in proving their employer owes them wages or engaged in retaliation can recover the wages owed plus liquidated damages in an additional amount equal to up to 200 percent of the unpaid wages, in addition to reasonable costs and the employee’s attorneys’ fees. The Act also increases the statute of limitations from two years to six years.Employers Face Treble Damages and Six-Year Statute of Limitations

The Act also creates a cause of action for employees who are discharged or otherwise subjected to an adverse employment action in retaliation for making a wage theft claim. Employers must offer reinstatement to the discharged employee or take other action as needed to remediate the retaliation. A rebuttable presumption is created where the adverse action occurs within ninety days of the employee filing a complaint with the New Jersey Department of Labor and Workforce Development or bringing a claim or action for violation of wage payment laws. The presumption can only be rebutted by clear and convincing evidence that the adverse action was taken for other non-retaliatory reasons.

Criminal Penalties

The Act establishes harsher penalties for employers who violate the New Jersey Wage Payment Law. Employers who knowingly fail to pay an employee the full amount of wages agreed to or required by law, or who retaliate against an employee for making an internal or external complaint, participating in a proceeding relating to wage payment laws, or because the employee has informed another employee about wage and hour rights under state law, violate the Wage Payment Law and face penalties as follows:

  • First Violation – the employer is guilty of a disorderly persons offense and faces a fine of $500 to $1000, imprisonment of 10 to 100 days, or both.
  • Second Violation – the employer is guilty of a disorderly persons offense and faces a fine of $1000 to $2000, imprisonment of 10 to 100 days, or both.
  • Third and Subsequent Violations – the employer is guilty of a crime of the fourth degree and faces a fine of $2,000 to $10,000 imprisonment of up to 18 months, or both.

Employers may also face criminal penalties for violations of the wage theft law. Under the Act, an employer’s failure to pay compensation as agreed within thirty days of the date due is a disorderly persons offense and carries a $500 fine and 20 percent penalty. Subsequent offenses carry penalties of $1000 plus 20 percent of wages owed. Effective November 1, 2019, employers who have been convicted of violating the law on two or more occasions are guilty of the crime of a “pattern of wage nonpayment” which is a third-degree offense.

Employers’ Bottom Line:

(more…)

Warner Session focuses on air, traffic control with MWAA

June 7, 2019

Warner Session is chairman of the board for the Metropolitan Washington Airports Authority

Article provided by   – Special Projects Editor, Washington Business Journal

When it comes to airline travel, Warner Session doesn’t have too many pet peeves. That is, unless the person seated in front of him decides to lean their seat back.

“I always get what I call the leaners,” Session says, laughing. Really, who can blame him? There’s a lot that can go wrong with transportation and Session has heard it all as chairman of the board for the Metropolitan Washington Airports Authority. An attorney by trade, Session joined the board in 2011 and considers his role a labor of love as MWAA helps to oversee not only projects at Dulles International and Reagan National airports, but also the Dulles Toll Road and the ongoing expansion of Metro’s Silver Line.

You were raised in California. How did you end up in Greater Washington? After I graduated Stanford, I came back east to go to law school at Georgetown. I had no intention of staying, but here I am 40 years later. I started in the political arena, working for the D.C. Council.

Where did you go after politics? I started my own practice, now Session Law Firm. I always had an entrepreneurial instinct and having worked on the Hill, I made an incredible amount of contacts.

What’s been the focus of your practice? I’ve worked with a lot of federal agencies on their small business programs. I like seeing businesses grow and working with them as they enter the federal arena and all the challenges that comes with trying to do business with the government. I still have a government contracting focus, but I do represent medium- and large-sized companies as well.

How would you describe yourself as a boss? I’m an easy boss. I delegate. It’s pretty easy because I have just one full-time employee.

What advice would you give to someone looking to get into politics or law? Do it. Even though politics is sometimes bad, it’s good to be part of the process. Policies influence our lives in every way.

What sparked your interest in transportation and aviation? When I was working for a member of Congress, we had an oversight subcommittee that she chaired on transportation. We had jurisdiction over the Federal Aviation Administration. The most interesting thing we had oversight of was the bombing of Pan Am 103 over (more…)

Minnesota Passes Sweeping Wage-Theft and Employer Recordkeeping Law

May 29, 2019

 

Felhaber Larson: Minnesota Passes Sweeping Wage-Theft and Employer Recordkeeping Law

During a special session over the Memorial Day Weekend, the Minnesota House and Senate passed an omnibus bill that creates new civil and criminal penalties for “wage theft.”  The bill also creates new recordkeeping requirements for Minnesota employers, including the requirement to keep a signed “wage statement” for each employee.

Gov. Walz has indicated that he will sign the bill so it will become effective on August 1, 2019.  Here is what the new law will do:

Wage Theft

The new law will make it a crime to commit “wage theft.”  Wage theft is any of the following actions by an employer with “intent to defraud”:

·         failing to pay an employee all wages, salary, gratuities, earnings, or commissions as required by federal, state, or local law;

·         directly or indirectly causing any employee to give a receipt for wages for a greater amount than that actually paid to the employee for services rendered;

·         directly or indirectly demanding or receiving from any employee any rebate or refund from the wages owed the employee; or

·         making it appear in any manner that the wages paid to any employee were greater than the amount actually paid to the employee.

If the value of wage theft exceeds $35,000, a person may be sentenced to prison for up to 20 years, a fine of up to $100,000, or both.
The wage theft protections will apply to actions that occur on or after August 1, 2019.

Revised Recordkeeping and New “Wage Statements” Requirement

The new law includes several additional recordkeeping requirements for Minnesota employers as well as additional authority for the Minnesota Department of Labor and Industry (DOLI) to monitor compliance.

(more…)

Amazon Intends to Prevent Wage Theft

March 20, 2019

 

The Amazon representative speaking to the Washington Business Journal said, “We’ve been having some conversations with the building trades, ensuring there is a workforce agreement in place, one of the priorities of that would be wage theft. In Seattle, Amazon expanded by 3 million square feet. We used 90 percent of building trades on that project. That project was delivered on time and efficiently.”

 

 

IRS Enforcement Facing Collapse

After Budget Cuts, the IRS’s Work Against Tax Cheats is Facing “Collapse”

ProPublica

October 1, 2018

https://www.propublica.org/article/after-budget-cuts-the-irs-work-against-tax-cheats-is-facing-collapse

 

The following are excerpts from the article:

 

Last year, the IRS’s criminal division brought 795 cases in which tax fraud was the primary crime, a decline of almost a quarter since 2010. “That is a startling number,” Don Fort, the chief of criminal investigations for the IRS, acknowledged at an NYU tax conference in June.

 

Bringing cases against people who evade taxes on legal income is central to the revenue service’s mission. In addition to recouping lost revenue, such cases are supposed “to influence taxpayer behavior for the hundreds of millions of American citizens filing tax returns,” Fort said. With fewer cases, experts fear, Americans will get the message that it’s all right to break the law.

 

“Due to budget cuts, attrition and a shift in focus, there’s been a collapse in the commitment to take on tax fraud,” said Chuck Pine, who used to be the third-ranking criminal enforcement officer at the IRS and is now a managing director at BDO Consulting. “I believe there are thousands of individuals who have U.S. tax obligations and are not complying with U.S. tax laws.”

 

The result is huge losses for the government. Business owners don’t pay $125 billion in taxes each year that they owe, according to IRS estimates. That’s enough to finance the departments of State, Energy and Homeland Security, with NASA tossed in for good measure. Unlike wage earners who have their income separately reported to the IRS, business owners are often on the honor system.

 

But the rate at which the agency audits tax returns has plummeted by 42 percent since the budget cuts started. Criminal referrals were always rare and are becoming rarer still, dropping from 589 referrals in 2012 to 328 in 2016. With the government conducting 1.2 million audits in 2016, that’s one criminal referral for roughly every 3,600 audits.

 

In addition, current and former IRS agents say that audits are not as intensive as they used to be. Because the IRS pushes agents to close audits more quickly, they make fewer requests for records and interviews.

 

Budget cuts have diminished the criminal investigation division, trimming the number of agents by a fifth since 2010. Recently, the IRS closed four of its 25 field offices, according to Fort. In New York state, home of the country’s financial industry, the revenue service is down to 161 agents, about a hundred fewer than it had 15 years ago.

 

Representative of the General President
United Brotherhood of Carpenters
and Joiners of America
101 Constitution Ave., NW

Washington, DC 20001
mobile: (203) 231-0398
mattclu210@gmail.com

DLLR Worker Misclassification

7/24/18

 

At the Construction Roundtable Meeting on June 28th, Kathy Sibbald reported on the Department of Labor, Licensing, and Regulation’s (DLLR) efforts regarding enforcement. She reported that there were 750 work-sites visited resulting in 138 new cases last year.

Sibbald is a DLLR administrator overseeing employment standards, prevailing and living wage, and worker classification protection.

She said the state collected $22,000 in fines and is in the process of hiring four new investigators.

Jim Tudor, program administrator for Prevailing and Living Wage and Worker Classification Protection Unit spoke about the need for contractors to submit the state’s prevailing wage survey.

DLLR Commissioner  Matt Helminiak and Labor Secretary Kelly Schulz also spoke at the meeting.

 

-Bernie Brill

Executive Director

SMACNA Mid-Atlantic Chapter