US senator wants probe of Blackwater's tax practices

WASHINGTON, Oct 25 (Reuters) - U.S. Sen. John Kerry vowed on Thursday to press for further investigation of the tax practices of Blackwater USA, the private security firm already under scrutiny over killings of Iraqi civilians.

"Blackwater is hiding behind the Bush administration to explain why they bilked the taxpayers out of millions of dollars," said the Massachusetts Democrat in a statement. "I intend to get to the bottom of this."

Blackwater, which employs about 1,000 people in Iraq, has been under a spotlight since some of its security guards were involved in the shooting deaths of at least 17 Iraqis in Baghdad last month in an incident that enraged the Iraqi government.

The company was accused on Monday of "significant tax evasion" by Rep. Henry Waxman, chairman of the House of Representatives Oversight and Government Reform Committee.

The California Democrat said Blackwater failed to withhold contributions from employees or pay to the government millions of dollars in mandatory Social Security retirement funds. He also alleged that it failed to make required payments for medical and unemployment benefits and related taxes.

In a letter to Blackwater Chairman Erik Prince -- a former Navy SEAL who founded the company in 1997 -- Waxman raised questions about the treatment of Blackwater personnel in Iraq and Afghanistan as contractors rather than employees.

Blackwater responded by saying that Waxman was "incorrect" in asserting that the deployed personnel should be treated as employees for tax purposes. The Blackwater statement said:

"The U.S. Small Business Administration (SBA) has determined in an official finding applying 'the criteria used by the IRS for federal income tax purpose,' that 'Blackwater security contractors are not employees.'"

Kerry, chairman of a Senate committee that oversees the SBA, had asked the agency about the finding cited by Blackwater and whether the SBA had helped "Blackwater avoid paying $31.8 million dollars in taxes."

SBA Administrator Steven Preston told Kerry in a letter that the agency had ruled in a November 2006 case involving Blackwater affiliate Presidential Airways that Blackwater personnel were not employees. But Preston said such findings have to do only with "eligibility for our small business programs and have no applicability to tax liability matters."

Asked about the SBA statement, Blackwater spokeswoman Anne Tyrrell said in an e-mail to Reuters: "Blackwater's decision to treat the personnel as (independent contractors) was based on a review of the relevant circumstances, including receiving input from outside advisors. That decision was reinforced by the SBA's conclusion."

Kerry said the SBA's letter showed its 2006 finding "provides no basis for tax decisions."

"I'm asking Blackwater to provide documentation for their decision and I am asking the (Senate) Finance Committee to investigate this matter further," he said.