As security clearance attorneys, we frequently represent individuals whose tax issues have placed their cleared careers at risk. One of the most commonly overlooked risks to a security clearance is unresolved tax debt or filing issues. Tax-related security clearance issues affect both federal employees and government contractors.
While many people understand that an arrest could trigger a clearance denial or revocation, fewer appreciate that delinquent taxes or late tax filings can also cause the same result.
The Connection Between Tax Issues and Security Clearances
Security clearances are issued based on an individual’s trustworthiness, reliability, and ability to safeguard classified information. These fall under Guideline F: Financial Considerations in Security Executive Agent Directive 4 (SEAD 4). Under this guideline, unresolved tax debts and the failure to file tax returns can cause roadblocks to keeping or obtaining a security clearance.
Why do tax issues matter? The government views significant debts or financial mismanagement as a potential security risk. Even if there is no evidence of misconduct, the mere appearance of financial problems can raise issues during a background investigation. In our experience, tax issues matter more to the Government than regular unpaid debts. The Government tends to view both tax debts and late tax filings as equally serious.
Common Tax Problems for Security Clearance Holders
The most common tax-related issues that jeopardize clearances include:
• Failure to file tax returns (federal, state or local)
• Unpaid federal, state or local tax debt
• Tax liens or garnishments
• Negligence in failing to resolve tax disputes
Another important note. Tax issues don’t have to be recent. Even older tax delinquencies can resurface during a clearance renewal or background reinvestigation. Also, tax issues that are indicative of a pattern are subject to more intense scrutiny.
What the Government Considers in Tax Clearance Issues
Not all tax issues are created equal. In assessing your case, adjudicators will consider:
• The nature, extent, and recency of the tax problem
• Whether it was intentional or negligent
• Whether there were policy exceptions involved with the tax filings (e.g. military service)
• Steps taken to resolve the tax issue
• Voluntary disclosure vs. concealment
For example, an individual who fell behind on taxes due to a medical emergency but who is now making regular payments under an IRS installment agreement will generally be viewed more favorably than someone who simply ignored their filing obligations.
Tips in Responded to Tax-Related Clearance Issues
If you are seeking or currently hold a security clearance and are facing tax problems, it is important to act promptly. Fixing tax issues for security clearance holders is very important. Here are a few quick tips in dealing with adverse tax issues:
Consult a Tax Professional
Professional guidance can help you understand your tax liabilities and options. Often, tax attorneys or CPAs can work with the IRS or state or local tax agencies to resolve tax issues on your behalf. They can also help in providing documentation of your positive efforts to resolve tax issues.
Work on Resolving the Tax Issues
Whether through a tax installment agreement, offer in compromise, or other IRS program, begin addressing the debt immediately. It is harder to mitigate these security concerns when the individual only starts attempting to resolve the tax issues are a Statement of Reasons (SOR) has been issued. It is important to address the tax issues as soon as possible. More credit is given to individuals who have evidence that they have worked on resolving their tax issues prior to the issuance of an SOR.
Keep a Record of all Tax-Related Documents
Keep detailed records of your efforts to resolve your tax issues. This documentation will be key during any security clearance adjudication or appeal. Keep documents, tax transcripts, cashed checks, copies of correspondence and even emails regarding tax resolution efforts.
Transparency is Important
Attempting to hide tax issues can result in an automatic denial or revocation. Transparency is critical. Keep in mind that background investigators likely have all of your tax records already.
Acceptance of Responsibility Where Warranted
When you have made mistakes with unpaid tax debts or late filings, acceptance of responsibility can be important. If you have a tax issue, it isn’t a good idea to blame someone else. It is best to accept responsibility where warranted and explain how the issue was unique and will not happen again.
Hire a Security Clearance Lawyer
If your security clearance is under review for tax issues, an attorney familiar with clearance law can prepare a compelling response and represent you before the appropriate federal agency. Tax issues are more complicated than most cases and often require a tax professional, as well as a security clearance attorney.
Contact Us
Tax issues, while serious, are not necessarily the end of your security clearance. What often matters more is how you respond. Inaction can lead to the loss of a security clearance. However, being proactive can help mitigate the tax issues and help you preserve your security clearance. We represent security clearance holders and applicants facing tax issues. We can be reached at (703) 668-0070 or through our website.
