A lot of bad information about taxes circulates on the internet and through word-of-mouth. I’d personally never take tax advice from anyone but a Certified Public Accountant (CPA) or an attorney, but a lot of people seem to feel differently. Here are a few of the most pervasive tax myths I’ve seen get clearance holders into trouble over the years.
Myth 1: You Have Three Years to File Your Returns if You Don’t Owe Money
This myth has been around for years and seems to stem from unartful language on the IRS website describing the length of time required to claim a refund due. To be clear, tax returns are due by the filing date (usually, April 15th) immediately following the tax year at issue, regardless of whether the taxpayer owes money or is owed a refund. This deadline can be extended by filing for an extension, but the taxpayer must affirmatively take that step. If owed a refund, the taxpayer must file within three years of the due date to claim it. This does not mean the filing deadline is extended three years if owed a refund; it simply means that the taxpayer is no longer eligible to claim that refund if filing more than three years late.
This is a misunderstanding I’ve encountered probably dozens of times over my career, and it can be a tough sell to security officials even if the mistake was made in good-faith.
Myth 2: You Don’t Have to File a Tax Return if Living Overseas
Federal income tax obligations for U.S. citizens are calculated using all income world-wide. There is a foreign earned income exclusion amount that is adjusted annually, but taxpayers are required to file a return in order to claim it. If the taxpayer’s income is under the foreign earned income exclusion amount, the taxpayer would then not owe any funds – but this doesn’t negate the filing requirement unless the taxpayer meets one of the specifically enumerated scenarios outlined by the IRS (more on that below).
Most taxpayers, including those living overseas, are required to file a tax return. One notable exception, however, is taxpayers serving in a qualified combat or combat support zone, for whom the filing deadline is extended until 180 days after their departure from the qualified combat or combat support zone. Members of the Armed Forces can also exclude income from qualified combat zone service from taxable income, and contractors may also qualify for the foreign earned income exclusion (see resources here, here and here). The rules in this area can be complicated, so taxpayers are always advised to consult with a tax professional regarding their specific situation.
For those otherwise in doubt about their filing obligation, the IRS offers an online assessment tool that may prove helpful.
Myth 3: Your Taxes Aren’t Late if You’re on an Installment Plan
This one can be tricky. In other areas of finance (e.g., credit card payments), an individual can make minimum payments in installments and still be “current” on the debt. But when it comes to taxes, payment of the full amount owed is due by the filing deadline. The IRS may accept an installment agreement for payment, but any payments made on an installment agreement are still considered late. This can cause significant confusion when completing personnel security forms, as some cleared taxpayers may not consider their timely filing of a tax return coupled with a request for installment payments as “late” within the meaning of the SF-86’s question on tax obligations.
Ultimately, the best recommendation I can make to any clearance holder is to get your taxes done by a professional. Many tax problems – the kind that too often needlessly tank cleared careers – can be avoided with competent help. But if you can’t or don’t want to pay for that, at least get your information from the source – the IRS or state tax authorities – as opposed to a third party.
This article is intended as general information only and should not be construed as legal or tax advice. Although the information is believed to be accurate as of the publication date, no guarantee or warranty is offered or implied. Laws and government policies are subject to change, and the information provided herein may not provide a complete or current analysis of the topic or other pertinent considerations. Consult an attorney regarding your specific situation.
