As security clearance lawyers, we frequently advise individuals whose financial issues have placed their careers at risk—particularly those holding or seeking a security clearance. One of the most commonly overlooked threats to a security clearance is unresolved tax debt or filing issues. Tax-related security clearance issues affect both federal employees and government contractors, alike.
While many people understand that criminal charges can trigger a clearance denial or revocation, fewer appreciate that delinquent taxes, late tax filings, or a pattern of financial irresponsibility can have the same effect.
The Intersection of Finances and Clearance
Security clearances are issued based on an individual’s trustworthiness, reliability, and ability to safeguard classified information. The National Security Adjudicative Guidelines for Determining Eligibility for Access to Classified Information outline specific criteria, including Guideline F: Financial Considerations under Security Executive Agent Directive 4 (SEAD 4). Under this guideline, unresolved tax debts, failure to file returns, or a history of financial irresponsibility can all be disqualifying security concerns.
Why do financial issues matter? The government views significant debt or financial distress as a potential security risk. Individuals in dire financial straits may be more susceptible to coercion, bribery, or exploitation. Even the mere appearance of financial instability can raise red flags during a background investigation. Tax issues matter more to the Government than regular debts. We have often had Government lawyers argue that they care far more about unpaid tax debts than regular consumer debts.
Common Tax-Related Triggers
The most common tax-related issues that jeopardize clearances include:
- Failure to file tax returns (federal, state or local)
- Unpaid federal, state or local tax debt
- Tax liens or garnishments
- Inaction in resolving tax disputes
- Not Reporting Side Job Income
Importantly, these issues don’t have to be recent. Even older tax delinquencies can resurface during a clearance renewal or background reinvestigation. Also, tax issues that are part of a pattern are subject to more scrutiny.
What the Government Considers in Tax Clearance Issues
Not all tax issues are created equal. In assessing your case, adjudicators will consider:
- The nature, extent, and recency of the tax problem
- Whether the tax issue was intentional or negligent
- Whether there were policy exceptions involved with late tax filings (e.g. military service)
- Steps taken to resolve the tax issues
- Voluntary disclosure vs. concealment
For example, an individual who fell behind on taxes due to a medical emergency but who is now making regular payments under an IRS installment agreement will generally be viewed more favorably than someone who simply ignored their filing obligations.
How to Respond if You’re at Risk
If you hold or are applying for a security clearance and are facing tax issues, it is critical to act promptly and strategically. Here’s how:
1. Consult a Tax Attorney or CPA
Professional guidance can help you understand your liabilities and options.
2. Resolve the Tax Issues
Whether through an installment agreement, offer in compromise, or other IRS program, begin addressing the debt immediately. It is harder to mitigate these security concerns when the individual only starts attempting to resolve the tax issues are a Statement of Reasons (SOR) has been issued. It is important to address the tax issues as soon as possible.
3. Document Everything
Keep meticulous records of your efforts to resolve the issue. This documentation will be key during any adjudication or clearance appeal. Keep documents, tax transcripts, cashed checks, copies of correspondence and even emails regarding the tax issues.
4. Disclose Tax Issues Honestly
Attempting to hide or omit tax issues can result in an automatic denial or revocation. Transparency is critical. Acceptance of mistakes with taxes is also helpful for mitigation.
5. Seek Legal Counsel for Clearance Defense
If your clearance is under review, an attorney familiar with clearance law can prepare a compelling response and represent you before the appropriate adjudicating body. Tax issues are more complicated than most cases and often require a tax professional, as well as a security clearance attorney.
Final Thoughts
Tax issues, while serious, are not necessarily the end of your cleared career. What often matters more is how you respond. Demonstrating a proactive, responsible approach can mitigate concerns and even preserve your clearance. The worst mistake is inaction—waiting until an issue becomes a crisis can severely limit your options.
If you’re facing tax-related clearance concerns, don’t go it alone. An experienced clearance lawyer and tax professional. l can help you navigate both the tax system and the security clearance process to protect your livelihood and your future.
This article is intended as general information only and should not be construed as legal advice. Although the information is believed to be accurate as of the publication date, no guarantee or warranty is offered or implied. Laws, regulations and government policies are always 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.
