The hits keep coming for federal consulting contractors.

First, the Trump administration questioned the value of these types of contracts, leading to a significant reduction in existing deals and the slow down of awards for new solicitations.

Now the Treasury Department is taking aim specifically at one of the biggest vendors. Treasury cancelled all 31 of its contracts with Booz Allen Hamilton. The department said these contracts total $4.8 million in annual spending and $21 million in total obligations. Booz Allen Hamilton won $7.5 billion in total obligations from agencies in fiscal 2025.

Treasury says the reason for cancelling these contracts is directly related to a former Booz Allen employee, Charles Littlejohn, who is serving five years in prison for disclosing thousands of tax returns without authorization.

“President [Donald] Trump has entrusted his cabinet to root out waste, fraud and abuse, and canceling these contracts is an essential step to increasing Americans’ trust in government,” said Treasury Secretary Scott Bessent in a statement. “Booz Allen failed to implement adequate safeguards to protect sensitive data, including the confidential taxpayer information it had access to through its contracts with the Internal Revenue Service.”

An email to Treasury seeking more information, including whether it was planning on suspending or proposing Booz Allen for debarment was not returned.

Littlejohn pleaded guilty in October 2023 to stealing and leaking confidential tax returns and return information of hundreds of thousands of taxpayers.

To date, the IRS determined that the data breach affected approximately 406,000 taxpayers.

“We have consistently condemned in the strongest possible terms the actions of Charles Littlejohn, who was active with the company years ago. Booz Allen has zero tolerance for violations of the law and operates under the highest ethical and professional guidelines. When Littlejohn’s criminal conduct occurred more than five years ago, it was on government systems, not Booz Allen systems. Booz Allen stores no taxpayer data on its systems and has no ability to monitor activity on government networks,” a Booz Allen spokesperson said in a statement. “Booz Allen fully supported the U.S. government in its investigation, and the government expressed gratitude for our assistance, which led to Littlejohn’s prosecution. We look forward to discussing this matter with Treasury.”

Treasury’s decision is unusual

In January 2025, Plaintiff Alarm Concepts filed a class action lawsuit because of Littlejohn’s actions against the IRS, Treasury and Booz Allen Hamilton, seeking “redress for the unlawful inspections and disclosures of their confidential tax returns and return information.”

“For over a decade, the IRS and Treasury Department have known that their cybersecurity safeguards for protecting confidential taxpayer information are woefully inadequate. Federal auditors repeatedly flagged the weaknesses and recommended stronger safeguards. Yet time and again, they failed to act, leaving taxpayers’ sensitive information vulnerable to unauthorized access and disclosure,” the plaintiffs wrote in their filing in the district court of Maryland. “Compounding these failures, Booz Allen, a consulting firm with billions in federal contracts, repeatedly failed to implement adequate safeguards of its own to protect the confidential taxpayer information it had access to through its contracts with the IRS and Treasury Department.”

The case hasn’t moved in the court since April.

Treasury’s decision to cancel all of its contracts with any one company is highly unusual, procurement experts said.

“It’s an overreaction. Even if Booz Allen did something that was subject to suspension or debarment, no one ever gets 100% wiped out from an agency,” said a former federal acquisition executive, who requested anonymity for fear of retaliation. “You’ve seen agencies put a hold on new awards, but it’s unusual to do this with a broad brush stroke. I think Treasury will come back and rescind themselves.”

The former official said typically if an agency found evidence of a problem with a contract, they can issue a stop work order and investigate the issue before taking such dramatic action.

For example, back in 2012, the Air Force suspended Booz Allen’s San Antonio office after allegations emerged that it violated acquisition regulations by sharing sensitive procurement data. The Air Force conducted an investigation and lifted its suspension by April.

But the former executive said the Trump administration is much more reactive when it comes to taking significant actions.

“The administration has a tendency to take dramatic action. It’s all or none. You’ve seen that with many other examples like when they went after Raytheon for Defense Department profits,” the source said. “I do wonder what other agencies will do next and whether they will follow Treasury’s lead.”

Treasury isn’t a big customer for Booz Allen. Data from USASepending.gov shows civilian agencies go through the General Services Administration’s Federal Acquisition Service to contract with the company.

For example, Booz Allen won three task orders worth a total of $20.6 million in fiscal 2025 under the OASIS+ professional services contract. Treasury, through the Bureau of Engraving and Printing, made one award last year, worth $3.5 million.

Under the Alliant 2 governmentwide acquisition contract, Booz Allen won 10 task orders worth $1.9 billion in 2025. Treasury made one award to Booz last year through Alliant 2 worth $24.3 million.

The Defense Department remains Booz Allen’s biggest federal customer.

Booz Allen brough in $2.6 billion in total revenue in its third quarter of 2026.

Heat turned up on consultants

Treasury’s decision to cancel its contracts with Booz adds to an already tumultuous year for the company. At its most recent earnings call in Jan. 23 for the third quarter of 2026, Booz Allen said its revenue was down 10.2% year-over-year.

It attributed a 15% reduction because of the 43-day government shutdown, and it said the federal government’s slower funding environment reduced its revenue by 35%.

“These factors drove a decrease in headcount, as well as a decline in billable expenses,” Booz Allen stated.

Booz Allen also was one of the first 10 consulting companies to come under scrutiny by GSA in February.

GSA said in May this approach has led to more than 2,800 consulting contract terminations valued at $23.2 billion in ceiling value and $10 billion in savings.

Additionally, both the Defense Department and the federal chief information officer have publicly warned agencies against depending too much on consulting contractors.

Greg Barbaccia, the federal CIO, said in June that his office would no longer meet with research, advisory and strategy consulting firms, and encouraged other agency CIOs to take the same approach.

Defense Secretary Pete Hegseth in May told DoD leadership not to execute new IT consulting or management services contracts or task orders with integrators or consultants unless they first justify that the work cannot be performed in-house or acquired directly from a service provider.

The former executive said they would expect Booz Allen leadership and its lawyers already to be meeting with Treasury officials to resolve the situation.

“I suspect they will have to help the government save face and give something up, but they probably are trying to negotiate a deal. If they can’t, I would expect Booz Allen to take Treasury to court,” the executive said. “Treasury is a big agency and reputational losing them hurts.”

The post Treasury cuts ties with Booz Allen over tax records breach first appeared on Federal News Network.