Approximately 83,000 employees and contractors who work for the Department of Defense, and are eligible for a security clearance, owe more than $730 million in unpaid federal taxes, according to a new government report.

The report, released Monday by the Government Accountability Office, examined the tax liabilities of DOD employees and contractors who held or were determined eligible for secret, top secret, or sensitive compartmented information clearances, or related interim clearance as of June 30, 2012. The Defense Department reported to the GAO that about 3.2 million civilian and military employees and contractors held or were approved for similar clearances from Jan. 1, 2006, to Dec. 31, 2011, which was the time frame for the GAO’s analysis.

According to data from the Internal Revenue Service, about 34,000 of these 83,000 individuals (or about 40 percent) with tax debts had a repayment plan with the IRS to pay back their debt as of June 30, 2012. The tax debts owed by those on a repayment plan totaled approximately $262 million.

Approximately half the individuals with tax debts were federal employees. About 44,500 of the approximately 83,000 individuals with tax debts were federal employees, while the others were employees of federal contractors or had an “other” designation used to identify other categories of individuals. Federal employees owed approximately $363 million of the $730 million (about 50 percent) of delinquent taxes owed by DOD clearance holders.

About 25 percent of the individuals with tax debt were eligible for a top -secret or SCI (sensitive compartmented information) clearance. Approximately 20,400 of these 83,000 individuals were favorably adjudicated as eligible for a top- secret or SCI clearance during the report’s time frame of Jan. 1, 2006, to Dec. 31, 2011, while the others were favorably adjudicated as eligible for a secret clearance. DOD employees with top secret or SCI-level clearances owed over $249 million in tax debt.

The GAO said its analysis cannot be generalized to individuals that were granted eligibility for security clearances and were non-DOD employees of the executive branch, employees of the legislative branch, or employees of the intelligence community.

As part of its work, the GAO also identified individuals with unpaid tax debts who also had access to classified information. DOD officials acknowledged that individuals who have access to classified information pose a greater risk because they have more opportunity to actually compromise classified information than a person who is only eligible to access classified information.

The GAO found that about 26,000 of the 83,000 DOD employees and contractors with eligibilities who owed taxes (about 31 percent) had access to classified information, and they owed about $229 million in federal taxes as of June 2012.

Sen. Tom Coburn, R-Okla., pointed out that better precautions need to be taken by the DOD. “It is vital that the Administration and Congress work diligently to eliminate potential threats that compromise the integrity of the federal workforce and the privileged information they safeguard,” Coburn said in a statement. “Giving security clearances to individuals who fail to follow the law is unwise and risky. Federal tax cheats with security clearances jeopardize both our national and economic security, and could unnecessarily put our nation’s classified information at risk. We must take prudent precautions not only to enhance our security, but also to encourage federal employees to pay their share of taxes and live by the same rules that so many hard-working Americans do.”

Last September, the GAO reported that additional mechanisms could improve federal agencies’ ability to detect delinquent federal tax debts owed by individuals determined eligible for security clearance, but statutory privacy protections limit access to this information. At the time, officials from the Office of the Director of National Intelligence (ODNI) told the GAO that they had formed a working group in 2012, in collaboration with the Office of Personnel Management (OPM) and other federal agencies to, among other things, explore whether an automated process for reviewing federal tax compliance could be established.

The GAO recommended that the ODNI, in consultation with the OPM and the Treasury Department, evaluate the feasibility of federal agencies routinely obtaining federal debt information from the Treasury Offset Program, or TOP, system, or a similar automated mechanism. TOP is a centralized offset program, administered by the Treasury Department, to collect delinquent debts owed to federal agencies and states. Both the Office of the Director of National Intelligence and the Office of Personnel Management concurred with the GAO’s September 2013 recommendation.

In June 2014, officials from the ODNI’s interagency working group stated that, due to the legal and logistical challenges of obtaining sufficient federal tax compliance information from the Treasury’s TOP system, the working group began exploring additional sources of information, such as information on tax filing as well as tax debt status, to provide automated federal tax-compliance checks for the purposes of investigating and adjudicating clearance applicants, as well as for ongoing monitoring of current clearance holders’ tax-debt status.

In addition, ODNI officials said in January 2014 that the IRS assigned a program manager to oversee the development or modification of IRS systems to accomplish automated tax compliance checks. Officials from the interagency working group said they are also exploring whether an exception to Section 6103 of the Tax Code, which generally prohibits disclosure of taxpayer data to federal agencies and others, would be advisable to facilitate the sharing of taxpayer information for the purpose of making security clearance determinations.

The officials said their goal was to establish an automated federal tax compliance check by 2017, but the officials also noted that efforts to develop an automated system to perform a federal tax compliance check were still in the initial planning stages.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access