More Than 8,000 Individuals Eligible for Security Clearances Owe about $85 Million in Federal Taxes; About Half Are on Payment Plans with the IRS

About 240,000 employees and contractors of civilian executive-branch  agencies, excluding known employees and contractors of DOD and  intelligence agencies, had a federal security clearance or were approved  for secret and top-secret clearances due to a favorable adjudication from  April 1, 2006, through December 31, 2011. According to IRS data, about 4,200 of these 8,400 individuals  with tax debt had a repayment plan with the IRS to pay back their debt  as of June 30, 2012. plan was approximately $35 million. Federal Agencies Have Mechanisms to Detect Tax Debt, but Opportunities Exist to Strengthen Detection Capabilities

To detect federal tax debt for clearance applicants, consistent with federal  law, federal investigators rely primarily on two methods: (1) applicants  self-reporting tax debts, and (2) validation techniques, such as the use of  credit reports or in-person interviews. Each of these methods has  shortcomings in detecting unpaid federal tax debts for clearance  applicants. However, credit reports only contain information on tax debts  for which the IRS filed a lien on the debtor’s property, both real and  personal, for the amount of the unpaid tax. Our analysis found  that about 450 of the approximately 8,400 delinquent taxpayers (about 5  percent) who were favorably adjudicated as eligible for security  clearances had a tax lien filed on them. Agencies Do Not Routinely Monitor Current Clearance Holders for Tax Debt

Federal agencies generally do not have routine mechanisms to review  federal tax compliance for individuals who hold security clearances. Specifically, there is no process to detect unpaid federal tax debts  accrued after an individual has been favorably adjudicated as eligible for  a security clearance unless it is self-reported, reported by a security  manager due to garnishment of wages, or discovered during a clearance  reinvestigation (renewal) or upgrade. Opportunities Exist to Improve Detection of Tax Debt Owed by Security- Clearance Applicants and Clearance Holders

Additional mechanisms that provide large-scale detection of federal tax  debt could improve federal agencies’ ability to detect tax debts owed by  security-clearance applicants and security-clearance holders, but  statutory privacy protections limit access to this information. Federal agencies may obtain information on federal tax debts directly  from the IRS if the applicant provides consent. The Department of the Treasury’s Offset Program (TOP), or a similar  mechanism, may provide an opportunity for federal agencies to perform  an automated check of both security-clearance applicants and current  clearance holders to determine whether they have unpaid federal debts  that would include tax debts, while not violating IRS section 6103  requirements. As part of this effort, exploring the feasibility of  investigative agencies routinely obtaining tax-debt information from the  Department of the Treasury, for the purposes of investigating and  adjudicating clearance applicants, as well as to conduct ongoing  monitoring of current clearance holders’ tax-debt status, could help  determine how, if at all, mechanisms such as TOP could be leveraged to  gain access to this information and enhance OPM’s ability to conduct  investigations and federal agencies’ ability to assess clearance eligibility. Recommendation for Executive Action

We recommend that, as part of its working group, the Director of National  Intelligence, as the Security Executive Agent, in consultation with OPM  and the Department of the Treasury, evaluate the feasibility of federal  agencies routinely obtaining federal debt information from the Department  of the Treasury’s TOP system, or a similar automated mechanism that  includes federal taxes, for the purposes of investigating and adjudicating  clearance applicants, as well as for ongoing monitoring of current  clearance holders’ tax-debt status. Appendix III: Scope and Methodology

Our objectives were to determine: (1) how many individuals with unpaid  federal taxes, if any, are in the Office of Personnel Management (OPM)  security-clearance database and what is the magnitude of any unpaid  federal tax debt? and (2) to what extent do federal agencies have  mechanisms to detect unpaid tax debt during the security-clearance  approval process? The OPM CVS database does not  maintain information on the denial of security clearances on the basis of  an individual’s nonpayment of federal taxes. Thus, we were not able to  determine the number of individuals who were denied security clearances  for this reason.To determine the extent to which individuals eligible for a  security clearance had unpaid federal taxes, we used the taxpayer  identification number (TIN) as a unique identifier and electronically  matched the Internal Revenue Service’s (IRS) tax-debt data to the OPM  data of individuals eligible for a security clearance. Using these criteria, we identified about 8,400 of these individuals who  had unpaid federal tax debt as of June 30, 2012.
Why GAO Did This Study

As of October 2012, about 4.9 million civilian and military employees and contractors held a security clearance. Federal laws do not prohibit an individual with unpaid federal taxes from holding a security clearance, but tax debt poses a potential vulnerability. GAO was requested to review tax-debt detection during the clearance process. GAO examined (1) the number of individuals with unpaid federal taxes, if any, in the OPM security-clearance database and the magnitude of any federal tax debt, and (2) the extent to which federal agencies have mechanisms to detect unpaid tax debt during the security-clearance-approval process.
GAO compared OPM's security-clearance information to the IRS's known tax debts. To provide examples, GAO conducted a detailed review of IRS and security adjudication files of 13 individuals selected, in part, on the basis of tax debt amount and type of security clearance. GAO also reviewed relevant laws and regulations and interviewed officials from the Office of the Director of National Intelligence (ODNI), Treasury, OPM, and three selected federal agencies that represented more than half of the clearance holders in OPM's database.

What GAO Found

About 8,400 individuals adjudicated as eligible for a security clearance from April 2006 to December 2011 owed approximately $85 million in unpaid federal taxes, as of June 2012. This represents about 3.4 percent of the civilian executive-branch employees and contractors who were favorably adjudicated during that period. GAO found that about 4,700 of the approximately 8,400 individuals were federal employees while the remainder was largely federal contractors. Additionally, about 4,200 of these individuals had a repayment plan with the Internal Revenue Service (IRS) to pay back their debt. For this review, GAO used clearance data from the Office of Personnel Management (OPM) Central Verification System (CVS) database. The CVS database does not maintain information on the denial of security clearances on the basis of an individual's nonpayment of federal taxes. Thus, GAO was not able to determine the number of individuals who were denied security clearances for this reason.
Federal agencies have established mechanisms aimed at identifying unpaid federal tax debt of security-clearance applicants; however, these mechanisms have limitations. To detect federal tax debt for clearance applicants, federal investigators primarily rely on two methods: (1) applicants self-reporting tax debts; and (2) validation techniques, such as the use of credit reports or in-person interviews. Each of these methods has shortcomings in detecting unpaid federal tax debts of clearance applicants. For example, credit reports are the primary method for identifying tax debt that was not self-reported, but these reports only contain information on tax debts for which the IRS filed a lien on the debtor's property. According to GAO's analysis, 5 percent of the 8,400 delinquent taxpayers who were favorably adjudicated as eligible for security clearances had a tax lien filed on them. Additionally, federal agencies generally do not routinely review federal tax compliance of clearance holders. There is no process to detect unpaid federal tax debts accrued after an individual has been favorably adjudicated unless it is self-reported, reported by a security manager due to garnishment of wages, or discovered during a clearance renewal or upgrade. GAO's analysis found that 6,300 individuals (approximately 75 percent) accrued their tax debt after approval of the security clearance.
Additional mechanisms that provide large-scale, routine detection of federal tax debt could improve federal agencies' ability to detect tax debts owed by security-clearance applicants and current clearance holders, but statutory privacy protections limit access to this information. Federal agencies may obtain information on federal tax debts directly from the IRS if the applicant provides consent. In addition, federal agencies do not have a mechanism, such as one that the Department of the Treasury (Treasury) uses, to collect delinquent federal debts. Such information could help federal agencies perform routine, automated checks of security-clearance applicants to determine whether they have unpaid federal debts, without compromising statutory privacy protections. Such a mechanism could also be used to help monitor current clearance holders' tax-debt status. Gaining routine access to this federal debt information, if feasible, would better position federal agencies to identify relevant financial and personal-conduct information to make objective assessments of eligibility for security-clearance applicants and continued eligibility of current clearance holders.

What GAO Recommends

GAO recommends that ODNI study the feasibility of federal agencies routinely obtaining federal debt information from Treasury for the purposes of investigating and adjudicating clearance applicants, as well as for monitoring current clearance holders' tax-debt status. ODNI agreed with GAO's recommendation.