29.101
Resolving tax problems
Always consult agency-designated legal counsel before addressing tax issues or negotiating with taxing authorities in government contracts.
Overview
FAR 29.101 outlines procedures for resolving tax issues that arise during government contracting. It emphasizes that tax matters are primarily legal in nature and require reference to contract terms and relevant tax laws. Contracting officers are directed to seek guidance from agency-designated legal counsel when tax questions occur, especially before negotiating with taxing authorities or addressing issues of tax validity, exemption, or refund. The regulation also discourages contractors from independently negotiating with taxing authorities in certain contract types and requires consultation with legal counsel before purchasing from foreign sources to address foreign tax matters.
Key Rules
- Legal Nature of Tax Issues
- Tax problems must be resolved by consulting contract terms and applicable tax laws, with legal counsel involvement.
- Agency Counsel Consultation
- Contracting officers must consult agency-designated counsel before negotiating with taxing authorities regarding tax validity, exemptions, or refunds.
- Contractor Negotiations Discouraged
- Contractors should not independently negotiate with taxing authorities on cost-reimbursement or fixed-price contracts with tax escalation clauses if government immunity may be at issue.
- Foreign Purchases
- Contracting officers must consult legal counsel regarding foreign tax treaties and programs before purchasing from foreign sources.
Responsibilities
- Contracting Officers: Must seek legal counsel for tax issues, especially before negotiations or foreign purchases.
- Contractors: Should avoid independent negotiations with taxing authorities in specified contract scenarios.
- Agencies: Must provide designated legal counsel and ensure consistent tax treatment across the agency.
Practical Implications
- Ensures legal compliance and consistency in handling tax matters.
- Reduces risk of improper negotiations or loss of government tax immunities.
- Common pitfalls include failing to consult counsel or allowing unauthorized contractor negotiations.