The last few years have been a difficult time to be on the job market. As a result, many people have turned to self-employment or “odd jobs” to pay the bills. It’s a reality that I see all the time in my law practice.
A recent ClearanceJobs.com article discussed how to list self-employment on the SF-86. For many security clearance applicants, however, an equally pressing question is what to do when the work – whether self-employment or working for someone else – is compensated on a cash basis without any tax reporting. Can that unreported or “under the table” income become a problem for a security clearance applicant? Does it have to be reported on the SF-86?
Unfortunately, the answer to both questions is yes.
Giving the Tax Man His Due
SF-86 question 26.3 asks whether, in the last 7 years, the applicant has “failed to file or pay federal, state, or other taxes when required by law or ordinance.” From a federal law standpoint, payment of taxes is required on “all income, from whatever source derived,” unless an exclusion applies. That means if you earned income from working (or almost anything else, for that matter), you owe taxes. The fact that an employer did not withhold the taxes on a W-2 is irrelevant legally. There is a duty to self-report that income under the law.
I can certainly understand the temptation not to pay taxes on one’s under-the-table bartending income or profits derived from that side business where clients pay you in cash. But failing to report the income can become an enormous headache down the road during the security clearance process. To start, knowingly failing to list the issue on the SF-86 technically constitutes perjury – grounds for both prosecution and a security clearance denial. On the other hand, listing the information constitutes volunteered criminal activity that can be reported to the IRS (although I’ve yet to see that happen). If you are confronting this issue right now on an SF-86, you need to consult with an attorney before deciding how to answer the question. If you anticipate dealing with this problem down the road, I strongly suggest filing an amended tax return for the year(s) in question now and paying any back taxes.
Don’t get me wrong – I hate taxes as much as the next person – but there isn’t any way around them when it comes to earned income. Uncle Sam always gets his share.
This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation.
