Democrats Query Why Tax-Avoiding Company Won U.S. Contracts

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Democratic lawmakers want the Obama administration to explain how Ingersoll-Rand Plc won government contracts even though it used a tax-avoidance strategy that they say disqualifies companies under federal law from selling products and services to the U.S.

The lawmakers wrote letters, dated July 9, urging the inspectors general of the U.S. Army and the Department of Homeland Security to investigate the government’s decisions.

“Ingersoll-Rand and other companies that desert their tax responsibilities should not be rewarded with federal contracts,” said the letters, signed by Representative Rosa DeLauro of Connecticut and six other Democrats. “That is why Congress has acted on multiple occasions to prohibit this behavior. While we recognize that Congress can, and should, do more to strengthen our laws, we are concerned that Ingersoll Rand is not being held accountable under our existing laws.”

Other signers include Representative Sander Levin of Michigan, Senator Elizabeth Warren of Massachusetts, Senator Jack Reed of Rhode Island and Senator Richard Durbin of Illinois.

The move is the latest attempt by Democrats to make it tougher for companies to switch their addresses to foreign countries, cut their U.S. tax bills and continue operating just as before. Those efforts have had mixed results.

2002 Law

The Department of Homeland Security last year endorsed a legal memorandum that argued in part that a 2002 law banning inverted companies from federal contracts was invalid, according to a copy of the memo obtained by Bloomberg News and first reported earlier this week.

Ingersoll-Rand argued in part that U.S. trade agreements with foreign governments invalidated the law that would prohibit it from winning federal contracts.

In a written response last year, a Homeland Security lawyer cleared Ingersoll-Rand for government work without explaining his reasoning, saying only that “we do not have reason to disagree” with the company’s argument. While it was known that Ingersoll-Rand received a green light, it hadn’t been reported that the government accepted a line of reasoning that called the whole law into question.

Arlen Morales, a spokesman for the Homeland Security inspector general’s office, said in an e-mail Friday that the agency was reviewing the lawmakers’ letter.

Ingersoll-Rand’s decision to switch its tax address from New Jersey to Bermuda in 2001, after more than a century as a U.S. industrial icon, helped cut hundreds of millions of dollars from its tax bills and spur Congress to pass the 2002 contracting ban.

The company later changed addresses again, to tax-friendly Ireland in 2009, after increased U.S. scrutiny of tax havens. The top executives never left the U.S., and Chief Executive Officer Michael Lamach now runs the company from a suburb of Charlotte, North Carolina. The company makes Club Car golf carts, Trane air conditioners, and Thermo King refrigerated trucks.

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