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Probe: IRS contractor won up to $500 million in questionable bids

(CBS News) WASHINGTON -- The Internal Revenue Service got some more unwanted attention Tuesday, but not for targeting political groups. This time, a congressional investigation has revealed a technology contractor won questionable bids worth up to $500 million.

Braulio Castillo began winning hundreds of millions of dollars worth of contracts with the IRS within months of founding his technology company Strong Castle in early 2012.

The House Oversight Committee says Braulio Castillo was given priority by claiming a 27-year-old disability and carefully choosing his company's location.

 / CBS News

"We've found the kind of wrongdoing that should have caused this contract to be cancelled," said Republican Darrell Issa, who chairs the House Oversight Committee, which investigated Castillo's rapid rise.

They found that just before opening Strong Castle, Castillo filed for a "disability rating" with the Veterans Administration, citing a "foot injury he suffered in 1984" -- 27 years ago -- while playing sports at a military prep school.

That rating enabled Castillo to register Strong Castle as a "service-disabled, veteran-owned small business," eligible for preferential treatment in bidding competitions.

"Understand -- never served a day on active duty, went to a school at taxpayers' expense and had a minor injury that didn't keep him from going on to play college ball," Issa said.

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Castillo, who lives in Virginia, also chose carefully where to locate Strong Castle: "In the heart of Chinatown," says his company website.

It's a formerly blighted area now bursting with shops and restaurants, but Chinatown is still designated a government "hubzone," which meant Castillo's company qualified for even more priority in bidding.

Yet when investigators visited Strong Castle's offices repeatedly, no one was there. Investigators said it appeared Castillo's wife "manipulated employee timesheets" to make it appear that workers spent more time there.

Castillo denies the allegations, telling CBS News in a statement, "Throughout our work with the IRS, we have never received any improper preferential treatment and have competed fairly for every contract that we have received."

The committee told the IRS about their findings several months ago, but officials there said it would be too disruptive to cancel a contract worth $260 million. Castillo and IRS officials have been called to testify Wednesday.

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IG: IRS CREDIT CARDS USED FOR WINE, PORNOGRAPHY

IRS official refuses to testify before Congress

WASHINGTON (Reuters) - An Internal Revenue Service official on Wednesday invoked his right not to answer questions at a congressional hearing, a day after a Republican report accused the official of inappropriately awarding federal contracts worth millions of dollars.

At a U.S. House of Representatives Oversight and Government Reform Committee hearing, Gregory Roseman, an IRS official involved in awarding IRS contracts, repeated four times that he would not answer questions. He was then excused from the hearing.

"I respectfully decline to answer any questions and invoke my Fifth Amendment privilege to remain silent," Roseman said, referring the Constitution's protection against self-incrimination.

Committee Chairman Darrell Issa, a California Republican, released the report on Tuesday that detailed personal ties between Roseman and the president of a Virginia-based government contracting business Strong Castle Inc.

The report also said the company made false statements to beat rivals for the work. Strong Castle, formerly known as Signet Computers, has denied any wrongdoing.

Roseman has been reassigned within the IRS because of his role in awarding the contracts.

IRS deputy commissioner Beth Tucker told the House panel the new information revealed by the committee is "deeply troubling," and that the IRS is taking steps to end its ties to Strong Castle.

The alleged misconduct by Strong Castle and Roseman shows "shockingly inappropriate" behavior and highlights how the company was able to "successfully manipulate the system to acquire contracts," Issa said on Wednesday.

The controversy is the latest in a series suffered by the IRS in recent weeks, most notably an inspector general report that last month said the agency inappropriately gave added scrutiny to conservative Tea Party-linked groups seeking tax-exempt status.

It was the second time in two months that an IRS official refused to answer questions at a congressional hearing.

Last month, Lois Lerner, the former head of the IRS tax-exempt division at the center of the Tea Party groups controversy, angered lawmakers by reading a statement before refusing to testify.

Issa's panel will vote on Friday on whether Lerner waived her Fifth Amendment right by giving a brief opening statement.