Holders of Sensitive Defense Jobs Owe $730 Million In Taxes

By on Monday, August 4th, 2014

The Government Accountability Office (GAO) released a report this week finding that 83,000 Department of Defense (DoD) civilian, military, and contractor employees holding or eligible for security clearances had more than $730 million in unpaid federal taxes.

During the time period GAO studied (2006 to 2011), 3.2 million DoD employees held or were deemed eligible for secret, top secret, or sensitive compartmented information (SCI) clearances, or related interim clearances. These clearances permit access to classified information that, if mishandled, could cause serious harm to national security.

While federal law does not prohibit an individual with unpaid federal taxes from being granted a security clearance, a delinquent tax debt poses a potential vulnerability that the government considers when making a security clearance determination. A person in bad financial shape is more likely to engage in illegal acts in order to keep creditors at bay. For this reason, we should also be worried about how much these 83,000 individuals owe in state and local taxes, too.

GAO made the following findings:

  • The median federal tax debt was about $2,700; debts ranged from $100 to millions of dollars.
  • 76 percent (63,000) of the debtors accrued the tax debt after they were deemed eligible for a security clearance.
  • 54 percent (44,500) were federal employees. They owed almost half of the total tax debt ($363 million). The rest were contractor employees and employees categorized as “other nonfederal employees.”
  • 25 percent (20,400) were eligible for a top-secret or SCI clearance and owed more than $249 million.
  • 31 percent (26,000) had access to classified information and owed $229 million. Of the 6,200 who had top-secret or SCI access, 47 percent were contractors or other nonfederal employees who owed $52 million.
  • 41 percent (34,000) of the debtors were in a repayment plan with the Internal Revenue Service to pay back $262 million in tax debt.

Privacy protections in section 6103 of the Internal Revenue Code hinder federal agencies’ ability to detect employees’ federal tax debts. Agencies need the individual’s consent to obtain tax debt information from the IRS. The GAO discussed this problem last year in its analysis of non-DoD civilian and contractor employees approved for security clearances who owed federal taxes. The GAO found that 8,400 of these employees owed $85 million in taxes.

According to the GAO, a working group formed by the Office of the Director of National Intelligence, the Office of Personnel Management, and the IRS is coming up with a way for the government to routinely obtain tax debt information when investigating security clearance applicants and monitoring current clearance holders. The working group plans to have an automated federal tax-compliance check system up and running by 2017.

Over the years, the Project On Government oversight has blogged and provided testimony about the need to crack down on the tax delinquency problem as applied to federal contractors. Our concerns were that contractors who owe taxes deprive the government of billions of dollars in revenue, are at increased risk of poor performance and default, and have an unfair competitive advantage over contractors who pay their taxes. Now, we have one more reason to treat this problem as a top priority—federal and contractor employees who owe taxes pose a threat to national security.

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