Tax Issues and Security Clearances

By John V. Berry, www.berrylegal.com

We have had an increase in security clearance cases arising over the last 5 years involving the issue of taxes and security clearances. This article discusses some of the issues that security clearance holders with tax issues have been affected.


It is quite often the case that we represent security clearance holders or applicants who have had trouble timely filing taxes or with the payment of their state, federal or local taxes.  The security concern most often falls under Adjudicative Guideline F, Financial Considerations, but could also fall under Adjudicative Guideline E, Personal Conduct. These guidelines govern security clearance holders, whether they are federal employees or government contractors. 

Specifically, Guideline F, Paragraph 18(f) provides the security concern that the government has with respect to taxes: “failure to file or fraudulently filing annual Federal, state or local income tax returns or failure to pay annual Federal, state or local income tax as required.” 

Most Common Tax Issues Affecting Security Clearance Holders

The most common issues for security clearance holders or applicants when it comes to taxes is twofold: (1) the timely filing of tax returns; and (2) paying one’s owed taxes. Over the years, the timely filing of tax returns has almost been more important to security clearance adjudicators than actually being current on tax payments.  The good news for security clearance holders is that tax issues are becoming slightly easier to mitigate if one can demonstrate the effort under Security Executive Agent Directive 4 (SEAD 4). It used to be that untimely filings of returns would result in almost an automatic denial, but the newer clearance guidelines and the mitigation of such types of cases has become a bit easier.  

Mitigation of Tax Concerns – Steps to Take

The most important step for a security clearance holder or clearance applicant with tax issues is to engage the tax authorities at issue and start to try to resolve the issues.  If a resolution is obtained from the Internal Revenue Service (IRS) or other tax authorities, then mitigating the security clearance concerns can become easier.  

The new focus by security clearance adjudication authorities has been on resolving the underlying tax issues. There is still an issue that may have to be dealt with regarding the timeliness of the filing of past returns, but the focus has shifted, primarily, to how the individual has resolved their tax issues.  The new Guideline F, Paragraph 20 (g) at page 16 states that mitigation can be shown where “the individual has made arrangements with the appropriate tax authority to file or pay the amount owed and is in compliance with those arrangements.” This is a new addition to the security clearance guidelines for Guideline F, involving taxes.

Demonstrating Mitigation

To show mitigation for tax issues under Guideline F, individuals should obtain copies of their tax transcripts, where possible, but also obtain other potential information about payments and receipts.  Additionally, any correspondence with tax authorities is helpful. The goal is to show security clearance adjudication authorities that the individual has attempted to rectify the tax situation.  

Other issues that could mitigate the failure to file tax returns properly or on time include: (1) individual maturity or knowledge when filing returns; (2) the uniqueness of the tax situation or issues that could have affecting tax filings; (3) a more recent record of filing taxes on time; (4) classes or other guidance received from tax professionals that illustrate how the individual has learned from the deficient filings; and (5) the amount of time that has passed since the late tax filing issue. It is also not a bad idea for individuals facing this issue to retain an accountant to oversee the tax filing process which can potentially be used to mitigate these issues as well. I have attached a link to a case that is helpful in explaining the new approach to reviewing tax issues.  That case is attached here

Additionally, it can be helpful in these types of cases for a review of the Whole-Person Concept, which can demonstrate the overall trustworthiness of the individual. Oftentimes, former military service members and others with a dedicated background with the government can receive additional consideration when attempting to mitigate tax issues that have arisen in the security clearance process

Conclusion

If you are in need of assistance in the security clearance process please contact our office at (703) 668-0070 or through our contact page to schedule a consultation. Please also visit and like us on Facebook or Twitter.