In March 2005, one of the Pentagon’s most trusted contractors - Virginia-based MPRI, founded by retired senior military leaders - won a $400 million contract to train police in Iraq and other hotspots. Two months later, MPRI set up a company in Bermuda to which it subcontracted much of the work.

Like MPRI’s Bermuda subsidiary, the Cayman Islands company appears to have no phone number, website, or staff of its own there.

Rick Kiernan, an MPRI spokesman, declined to explain why the company created the two offshore entities and stressed that MPRI operates in “total adherence or compliance with the current law.”

But tax lawyers say that MPRI appears to be avoiding the payment of roughly $4 million dollars a year in Social Security and Medicare taxes for the police-training contract alone and is sidestepping scrutiny by hiring workers through offshore entities based outside the jurisdiction of the Internal Revenue Service.

“The employer is trying to take itself out of the audit reach of the IRS,” said California-based tax lawyer James R. Urquhart III.

More at Boston.com