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Security firm defrauded government, congressman says

WASHINGTON — The Democratic chairman of a House watchdog committee said Monday that Blackwater USA violated tax laws and may have defrauded the government of millions of dollars, a charge the embattled security firm said is groundless.

Rep. Henry Waxman, who chairs the Committee on Oversight and Government Reform, released a March letter from the Internal Revenue Service that states the company's classification of a security guard as an independent contractor, instead of company personnel, was "without merit."

Under U.S. law, companies must pay Social Security and other federal taxes on their employees. But unlike other security companies operating in Iraq, Blackwater says the guards it trains, equips and deploys to Iraq and elsewhere are independent contractors hired directly by the federal government.

"By classifying its armed guards and other personnel as independent contractors instead of employees, Blackwater has apparently evaded withholding and paying these taxes," Waxman, D-Calif., wrote in a letter to Blackwater chief Erik Prince.

Blackwater spokeswoman Anne Tyrrell said in an e-mail statement to The Associated Press that the company has appealed the IRS ruling and that no final determination has been made. Further, she said, the U.S. Small Business Administration has told the company that Blackwater security guards do not have to be classified as company employees.