This year’s COVID-19 ride has many people asking whether their savings are safer in other investments, but for the clearance holder, there are many considerations before taking a leap into a new financial venture. One of the most popular alternatives historically is real estate, which is tough when travel has ground to a halt. But with things tentatively opening back up and options abounding for short-term rental income, property owners are increasingly choosing to use websites like Airbnb for income in lieu of traditional long-term occupancies bound by leases.
There’s nothing wrong with short-term rentals; indeed, some investors have reaped significant financial rewards from them – especially when you’re not in the middle of a pandemic where the properties are located near theme parks, beaches, or other tourist attractions. But for those investors in short-term rentals whose day job requires maintaining a security clearance, there are a few precautions to consider.
FOREIGN CONTACTS
One question my office received recently from a client was whether he needed to report foreign nationals who stayed at his Airbnb rental as foreign contacts. Unless otherwise instructed by agency security officials, reportable foreign contacts are those with whom the clearance-holder has close and/or continuing contact. “Close” is defined as those to whom the clearance-holder is bound by bonds of affection, obligation, or influence. With this definition in mind, a general rule of thumb is that Airbnb or other short-term rental guests are not reportable foreign contacts because the rental is an arms-length transaction and the contact is fleeting. But that analysis can change. For example, the contact might become reportable if a friendship develops and the renters return year-after-year or the clearance-holder visits them during his or her own travel abroad. Social media can also blur these lines. When in doubt, seek competent advice from security officials.
Make Sure Uncle Sam Gets All of His Tax money
We’ve seen several occasions over the years where a clearance-holder has encountered trouble with security officials for failing to report the income derived from a short-term rental to tax authorities. Don’t overlook short-term rental income when filing your income tax returns. Also keep in mind that many localities impose occupancy taxes on short-term rentals, which the property owner is required to collect from guests and remit to local tax authorities. Failing to do this can make the property owner personally liable for the occupancy taxes. Know that they add up quickly.
PAPERWORK AND COMPLIANCE
Many jurisdictions also require short-term rental owners to secure a business license and/or some other form of local zoning or licensing approval. Anyone thinking about buying a short-term rental or converting an existing long-term rental to a short-term rental would do well to first consult with their local city or county business licensing office and find out what regulatory hurdles need to be cleared before setting up shop. While it’s unlikely that a security clearance would be denied or revoked solely on the basis of an applicant’s failure to comply with a local short-term rental ordinance, it is not out of the realm of possibility if the violation evidences a willful refusal to comply with a law or regulation. This is especially true if the violation is committed for the purpose of hiding income or skirting health and safety regulations. It’s worth noting that it is also usually much cheaper and easier to be in compliance from the beginning then to get in compliance retroactively.
THE HOSTESS WITH THE MOSTESS
Finally, many short-term rental owners take it upon themselves to go the extra mile for their guests in the hope of earning positive reviews that favorably impact their business. Being a tour guide or offering a welcome basket of local foods is one thing. But procuring drugs, prostitutes, or otherwise helping one’s guests break the law – even if the host doesn’t partake in the activity – is a definite recipe for security clearance problems. “It’s just business” isn’t going to cut it with security officials. And if I’m pointing out what may seem like the obvious here, its because I can tell you from first-hand experience that not all clearance-holders share the same perceptions of obvious.
This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation.
