Approximately 8,400 federal employees and contractors who were judged eligible for a security clearance from April 2006 to December 2011 owed approximately $85 million in unpaid federal taxes as of June 2012, according to a new government report.

The report, from the Government Accountability Office, noted that the figure represents about 3.4 percent of the civilian executive-branch employees and contractors who were favorably adjudicated during that period. As of October 2012, about 4.9 million civilian and military employees and contractors held a security clearance.

The GAO found that about 4,700 of the approximately 8,400 individuals were federal employees, while the others were mostly federal contractors. In addition, about 4,200 of these individuals had a repayment plan with the Internal Revenue Service to pay back their tax debts.

Federal laws do not prohibit an individual with unpaid federal taxes from holding a security clearance, but tax debt poses a potential vulnerability, the report pointed out.

GAO used clearance data from the Office of Personnel Management’s Central Verification System database to compile the report. The CVS database does not maintain information on the denial of security clearances on the basis of an individual's nonpayment of federal taxes, however, so the GAO was unable to determine the number of individuals who were denied security clearances for this reason.

The GAO pointed out that federal agencies have established mechanisms to identify the unpaid federal tax debts of security-clearance applicants, but these mechanisms have limitations. To detect federal tax debt for clearance applicants, federal investigators mainly rely on two methods: the self-reporting of tax debts by applicants, and validation techniques such as the use of credit reports or in-person interviews. Each of these methods has shortcomings in detecting unpaid federal tax debts of clearance applicants.

For example, credit reports are the primary means for identifying tax debts that were not self-reported, but these reports only contain information on tax debts for which the IRS has filed a lien on the debtor's property. According to the GAO's analysis, 5 percent of the 8,400 delinquent taxpayers who were favorably adjudicated as eligible for security clearances had a tax lien filed on them. In addition, federal agencies generally do not routinely review federal tax compliance of clearance holders.

There is no process to detect unpaid federal tax debts accrued after an individual has been favorably adjudicated unless it is self-reported, reported by a security manager due to garnishment of wages, or discovered during a clearance renewal or upgrade, the report noted. The GAO's analysis found that 6,300 individuals (or approximately 75 percent) accrued their tax debt after approval of the security clearance.

Additional mechanisms that provide large-scale, routine detection of federal tax debt could improve the ability of federal agencies to detect tax debts owed by security-clearance applicants and current clearance holders, but statutory privacy protections limit access to this information, the report pointed out. Federal agencies may obtain information on federal tax debts directly from the IRS if the applicant provides consent. In addition, federal agencies do not have a mechanism, such as the one used by the Treasury Department, to collect delinquent federal debts.

Such information could help federal agencies perform routine, automated checks of security-clearance applicants to determine whether they have unpaid federal debts, without compromising statutory privacy protections, the GAO noted. Such a mechanism could also be used to help monitor current clearance holders' tax-debt status. “Gaining routine access to this federal debt information, if feasible, would better position federal agencies to identify relevant financial and personal-conduct information to make objective assessments of eligibility for security-clearance applicants and continued eligibility of current clearance holders,” said the report.

The GAO recommended that the Office of the Director of National Intelligence study the feasibility of federal agencies routinely obtaining federal debt information from the Treasury Department for the purposes of investigating and adjudicating clearance applicants, as well as for monitoring current clearance holders' tax-debt status. The ODNI agreed with the GAO's recommendation.

“Although the investigative process involves mechanisms for detecting unpaid financial obligations, including some federal tax debt, it can be difficult to identify each and every instance of unpaid debt,” wrote Jim Crumpacker, director of of the Departmental GAO-OIG Liaison Office. “Reliance on self-reporting and legal restrictions on data sharing with the Internal Revenue Service complicates potential efforts to improve debt detection. Furthermore, it is not currently a condition of employment that all federal employees, regardless of whether or not they hold a clearance, be current on federal tax debt.”

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