This thesis explores the genesis of a Federal excise tax known as, FEDERAL RETAIL EXCISE TAX (FRET), and its impact on the acquisition of Medium and Heavy Tactical Wheeled Vehicles by the US Army and its sister Services. The thesis examines how DOD is impacted by the payment of this tax to the Department of the Treasury, through the IRS, and it reviews and discusses the direct cost, lost opportunity costs, and administrative burden to both DOD and its wheeled vehicle manufacturers. DOD payment of FRET to its contractors is in actuality the payment by one Government agency, the Army, to another Government agency, the IRS, through a third party, the defense contractor; who is considered by the IRS to be the taxpayer of record. As a result of this "three party" arrangement, no feedback mechanism exists between the Army and the IRS to verify actual payments, or for the Army to discuss and mitigate tax issues directly with the IRS. The result has been numerous tax disputes between the Army, its contractors, and the IRS, resulting in at least three different opinions between the IRS, the General Accounting Office (GAO), and the Armed Services Board of Contract Appeals (ASBCA) for the proper handling of FRET in sealed bid acquisitions. This adds complexity to tax applicable acquisitions, and may allow defense contractors to manipulate the competitive acquisition process. This situation costs DOD millions of dollars each year, and is examined by addressing the primary research question: "What is the cost to the Government, both monetary and otherwise, of the Army paying FRET to the IRS, through third party defense contractors?
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