Security Clearances: Additional Mechanisms May Aid Federal Tax-Debt Detection
Released: 2013-10-31T00:00:00

Letter

Background

Unpaid Federal Tax Debt Owed

As of September 30, 2012, the tax debt of individuals and businesses that owed the U.S. government was about $364 billion, according to the IRS.

The tax-debt inventory is the sum of all taxes owed to the IRS at a particular point in time, including debts from the current year and debts from previous years that fall within the 10-year statute of limitations on collections. The inventory of tax debts comprises tax assessments that are not collected along with related penalty and interest charges. Federal taxes that are owed become tax debts when the tax is assessed but not paid. Millions of individual and business taxpayers owe billions of dollars in unpaid federal tax debts, and the IRS expends substantial resources trying to collect these debts.

GAO, High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: February 2013). workforce (approximately 312,000 individuals).contain a comparison of the delinquency rates of federal employees with the general population.

Laws and Regulations Governing the Security- Clearance Process

Passed in 2004, the Intelligence Reform and Terrorism Prevention Act (IRTPA) mandates the President to identify a single entity responsible for, among other things, directing the day-to-day oversight of investigations and adjudications for personnel security clearances throughout the U.S. government. Additionally, agencies may not establish additional investigative or adjudicative requirements without approval from the selected entity, nor may they conduct an investigation where an investigation or adjudicative determination of equal level exists.

Executive Order 13467 (June 30, 2008) designates ODNI as the Security Executive Agent and assigns responsibility for developing uniform and consistent policies and procedures to ensure the effective, efficient, and timely completion of investigations and adjudications related to determinations of eligibility for access to classified information or eligibility to hold a sensitive position. Executive Order 13467 also designates the Director of OPM as the Suitability Executive Agent responsible for developing and implementing uniform and consistent policies and procedures for investigations and adjudications related to determinations of suitability for federal employment, as well as eligibility for electronic and physical access to secure facilities.outlines a process for continuous evaluation of individuals that are determined to be eligible or currently have access to classified information. Continuous evaluation means reviewing the background of an individual who has been determined to be eligible for access to classified information (including additional or new checks of commercial databases, government databases, and other information lawfully available to security officials) at any time during the period of eligibility to determine whether that individual continues to meet the requirements for eligibility for access to classified information. Executive Order 12968 (August 4, 1995) authorized establishment of uniform security policies, procedures, and practices, including the Federal Investigative Standards used by investigators conducting security-clearance investigations. In December 2012, the Security and Suitability Executive Agents (ODNI and OPM) jointly issued a revised version of Federal Investigative Standards for the conduct of background investigations for individuals that work for or on behalf of the federal government.

Security-Clearance Process

Personnel security clearances are required for access to classified national-security information, which may be classified at one of three levels: confidential, secret, or top secret. A top-secret clearance is generally also required for access to Sensitive Compartmented Information or Special Access Programs. The level of classification denotes the degree of protection required for information and the amount of damage that unauthorized disclosure could reasonably be expected to cause to national security. Unauthorized disclosure could reasonably be expected to cause (1) “damage,” in the case of confidential information; (2) “serious damage,” in the case of secret information; and (3) “exceptionally grave damage,” in the case of top-secret information.

As shown in figure 1, to ensure the trustworthiness and reliability of personnel in positions with access to classified information, government agencies rely on a personnel security-clearance process that includes multiple phases: application, investigation, adjudication, and reinvestigation (where applicable, for renewal or upgrade of an existing clearance).

The application phase. To determine whether an investigation would be required, the agency requesting a security-clearance investigation is to first conduct a check of existing personnel-security databases to determine whether there is an existing security-clearance investigation underway or whether the individual has already been favorably adjudicated for a clearance in accordance with current standards. If such a security clearance does not exist for that individual, a security officer from an agency is to (1) request an investigation of an individual requiring a clearance; (2) forward a personnel-security questionnaire (SF-86) to the individual to complete using OPM’s Electronic Questionnaires for Investigations Processing (e-QIP) system; (3) review the completed questionnaire; and (4) send the questionnaire and supporting documentation, such as fingerprints, to OPM or another designated investigative service provider.

The investigation phase. OPM conducts a majority of the government’s background investigations; however, some agencies, such as State, are delegated to conduct their own background investigations. Federal investigative standards and agencies’ internal guidance are used to conduct and document the investigation of the applicant (see app. II). The scope of information gathered during an investigation depends on the level of clearance needed. For example, federal standards require that investigators collect information from national agencies, such as the Federal Bureau of Investigation, for all initial and renewal clearances. For an investigation for a confidential or secret clearance, investigators gather much of the information electronically. For an investigation for a top- secret clearance, investigators gather additional information through more-time-consuming efforts, such as traveling to conduct in-person interviews to corroborate information about an applicant’s employment and education. After the investigation is complete, the resulting investigative report is provided to the agency.

The adjudication phase. Adjudicators from an agency use the information from the investigative report to determine whether an applicant is eligible for a security clearance. To make clearance-eligibility decisions, national policy requires adjudicators to consider the information against the 2005 Revised Adjudicative Guidelines for Determining Eligibility for Access to Classified Information. The adjudication process is a careful weighing of a number of variables, to include disqualifying and mitigating factors, known as the “whole-person” concept. When a person’s life history shows evidence of unreliability or untrustworthiness, questions can arise as to whether the person can be relied on and trusted to exercise the responsibility necessary for working in a secure environment where protecting national security is paramount. As part of the adjudication process, the adjudicative guidelines require agencies to determine whether a prospective individual meets the adjudicative criteria for determining eligibility, including personal conduct and financial considerations. If an individual has conditions that raise a security concern or may be disqualifying, the adjudicator must evaluate whether there are other factors that mitigate such risks (such as a good-faith effort to repay a federal tax debt). On the basis of this assessment, the agency may make a risk-management decision to grant the security-clearance eligibility determination, possibly with a warning that future incidents of a similar nature may result in revocation of access.

The reinvestigation phase. Personnel cleared for access to classified information may have their clearance renewed or upgraded if determined necessary to the performance of job requirements. Reinvestigation covers the period since the previous investigation. Renewal of a clearance at the same level currently undergoes the above process every 10 years for secret or 5 years for top secret. Applicants for clearance upgrades undergo additional steps necessary to obtain the higher clearance level (such as a subject interview for a top-secret clearance).

Improvements to the Federal Security-Clearance Process

We have previously reported on issues related to the federal security- clearance process. For example, in 2005, we designated DOD’s personnel security-clearance program—which comprises the vast majority of government wide clearances—as a high-risk area. This designation continued through 2011 because of concerns regarding continued delays in the clearance process and security-clearance documentation, among other things.personnel security-clearance program as a high-risk area, DOD, in Since we first identified the DOD conjunction with Congress and executive-agency leadership, took actions that resulted in significant progress toward improving the processing of security clearances. Congress held more than 14 oversight hearings to help oversee key legislation, such as the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA), which helped focus attention and sustain momentum of the government-wide reform effort. In 2011, we removed DOD’s personnel-security clearance program from our high-risk list because of the agency’s progress in improving timeliness, development of tools and metrics to assess quality, and commitment to sustaining progress.

In 2012, we found that OPM’s reported costs to conduct background investigations increased by about 80 percent, from about $600 million in fiscal year 2005 to almost $1.1 billion in 2011 (in fiscal year 2011 dollars). OPM’s background investigation program has several cost drivers, including investigation fieldwork and personnel compensation for OPM’s background-investigation federal workforce. OPM attributed cost increases to, in part, an increase in the number of top-secret clearance investigations, which involve additional field work and more comprehensive subject interviews and compliance with investigation timeliness requirements.

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. These consist of both initial investigations when an individual is applying for a clearance and reinvestigations when an individual is upgrading to a higher clearance level or renewing an existing clearance. About 8,400 of the 240,000 people (approximately 3.5 percent) had unpaid federal tax debt as of June 30, 2012, totaling about $85 million. The characteristics and nature of these 8,400 individuals with tax debt are discussed below.

About half of the individuals are in a repayment plan with the IRS. 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.

The tax debt owed by those on a repayment

About half of individuals with tax debt were federal employees.

Repayment plans, or installment agreements, are monthly payments made to the IRS that allow individuals or entities to repay their federal tax debt over an extended period. time frame (April 1, 2006, to December 31, 2011), while the others were favorably adjudicated as eligible for a secret clearance.

Most individuals accrued tax debt after clearance adjudication.

Approximately 6,300 individuals (about 76 percent) accrued tax debts only after the issuance of the security clearance. Approximately 2,000 individuals (about 25 percent) accrued their tax debt before the approval for the security clearance.

Age and amount of tax debt ranges widely. About 16 percent of the $85 million in unpaid federal taxes were delinquent more than 3 years, and approximately 6 percent of the unpaid federal taxes were delinquent more than 5 years. Further, the unpaid tax debt of each individual ranged from approximately $100 to over $2 million, and the median tax-debt amount owed by these individuals was approximately $3,800.

In addition, we analyzed 13 nongeneralizable case examples—7 federal contractors and 6 federal employees from the DOE, DHS, and State—to determine whether existing investigative and adjudication mechanisms detected unpaid tax debt during the security-clearance process. In 8 of these 13 cases, the individual had a top-secret clearance, with the remaining 5 having secret clearances. In 5 of the 13 cases, the individual had a reinvestigation of the security clearance after the period of our analysis (April 1, 2006, to December 31, 2011). In 11 of these 13 cases, the individual’s tax debt accrued before the favorable adjudication of the security clearance. For all 11 of these cases, the tax debt was identified either through the initial investigation or through the reinvestigation. In 2 of the 13 cases, the individual’s tax debt accrued after the favorable adjudication of the security clearance, and no indication of the federal tax debt was found in the security clearance files. On the basis of our review of IRS records, our analysis found that 12 of the 13 individuals filed their tax returns late for at least 1 tax year, and 6 of the 13 individuals did not file at least one annual tax return.discussed throughout the report.

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. Moreover, federal agencies do not routinely monitor individuals after the security clearance is favorably adjudicated to identify tax debt accrued subsequent to the clearance approval. 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.

Investigation Mechanisms Include Self-Reporting and Validation Techniques

Self-Reporting

As part of the application-submission phase of the security-clearance process, applicants must submit various background and biographical information using OPM form SF-86. In addition, new federal employees typically complete the Declaration for Federal Employment form (OF- 306). Both of these forms require applicants to disclose if they are delinquent on any federal debt, including tax debts. The SF-86 is used in conducting background investigations, reinvestigations, and continuous evaluations of federal employees and contractors. The SF-86 requires that applicants declare if they did not file or pay any federal taxes within the past 7 years. The SF-86 also requires applicants to disclose whether any liens were placed on their property for failure to pay tax debts and whether they are currently delinquent on any federal debts (including tax debts). Similar to the SF-86, the Declaration for Federal Employment requires applicants to disclose if they are delinquent on any federal debt, including tax debts. If the applicant is delinquent, the applicant is required to disclose, among other things, the type and amount of debt and any steps taken to repay the debt. An excerpt of the SF-86 where applicants are required to disclose any tax issues are illustrated in figure 2.

Of the 13 individuals we examined from our nongeneralizable sample, 11 had accrued debt prior to the clearance being granted. Our review of the SF-86 documentation for this sample of 11 selected cases found that 5 individuals did not properly disclose their tax debts. Each of these individuals owed at least $12,000 at the time of our review. As discussed later in this report, our past work has focused on the inadequacies of relying on self-reported information without independent verification and review.

During the investigative phase, the investigative agency can perform several activities in an effort to validate applicants’ certifications about the nature and extent of their tax debts, but each of the techniques has limitations, as discussed below.

Obtaining credit reports of the applicants. According to OPM officials, credit reports, which contain public records including federal tax liens, are the primary method of identifying federal tax debts that were not self- reported. 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. Circumstances do not warrant a lien being filed in all cases, such as when the amount of the debt is in dispute or when the IRS determines that filing a lien would hamper collection of the debt because the debtor is trying to obtain a loan to pay it off. In addition, the IRS generally does not file liens until after the debt has moved out of the notice status and there is property on which a lien can be placed. The amount owed can increase with interest and penalties or can decrease as the debtor makes payments, but neither change is reflected in the recorded tax lien amount. 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. For the 13 cases that we reviewed, 4 of the cases identified during the investigative process had tax liens filed against the individuals.

Conducting in-person interviews. As part of the investigation, investigators may conduct interviews with the applicant and his or her friends, former spouses, neighbors, and other individuals associated with the applicant. According to OPM, during the course of the in-person interviews, the tax debt could be disclosed, but there is no systematic way to identify tax debt during the interviews. For example, according to State officials, state tax debt is usually an indicator that the individual also owes federal taxes. Thus, during the course of their in-person interviews, investigators will often inquire with the applicant whether he or she owes federal taxes when a state tax debt is discovered. However the in-person interviews can be a time-consuming and resource-intensive process, and OPM does not have assurance that it identifies all tax debt information through the interview process.

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. Given that individuals who hold security clearances are reinvestigated every 10 years for secret clearances and every 5 years for top-secret clearances, if an individual accrues tax debt after a security clearance is granted, the unpaid federal tax debt may not be detected for up to 5-10 years. As previously discussed, in 2 of our 13 case studies, the individuals’ tax debt accrued after the favorable adjudication of the security clearance, and we found no indication that the federal tax debt was identified in the security- clearance file. In addition, if the tax debt is not found in the initial investigation, the federal agency may not detect the tax debt until the next security clearance reinvestigation. In 5 of the cases that we reviewed, existing federal tax debt was not identified in the original adjudication of the security clearance but through the subsequent reinvestigation of the security clearance, meaning the individuals had tax debt unknown to the federal agency while holding a clearance for some period of time. This gap represents a risk that could be mitigated by a mechanism to routinely obtain tax-debt information, as discussed later in this report.

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. Specifically, access to the federal tax information needed to obtain the tax payment status of applicants is restricted under section 6103 of the Internal Revenue Code, which generally prohibits disclosure of taxpayer data to federal agencies and others, including disclosures to help validate an applicant’s certifications about the nature and extent of his or her tax debt. During our interviews, ODNI, DHS, DOE, and State officials expressed interest in establishing additional mechanisms to provide large-scale detection of unpaid tax debt owed by security-clearance applicants. ODNI officials stated that they formed a working group in 2012, in collaboration with OPM and other federal agencies, to, among other things, explore whether an automated process for reviewing federal tax compliance can be established. However, restrictions to taxpayer information under section 6103 may present challenges to their efforts. For example, in 2011 and 2012, State requested the IRS to provide it a listing of State employees who owed federal taxes. The IRS did not formally respond in writing to the State letters, according to State officials, but stated that the IRS could not provide them this list due to section 6103 restrictions. According to IRS officials, based on their analysis of the applicable tax laws, IRS cannot disclose tax information of federal employees without taxpayer consent request.

Federal agencies may obtain information on federal tax debts directly from the IRS if the applicant provides consent. For example, agencies can use IRS form 4506-T, Request for Transcript of Tax Return, to obtain tax transcripts that provide basic taxpayer information, including marital status, type of return filed, adjusted gross income, taxable income, and later adjustments, if any, if the individual provides written consent. However, this form may not be useful in conducting routine checks with the IRS during the initial investigation and reinvestigation processes for three reasons. First, the use of the IRS form 4506-T is a manual process and thus it is not conducive to the large-scale detection of unpaid federal taxes owed by security-clearance applicants, according to OPM, DHS, and State officials. Instead, this method is typically performed when a federal tax debt is disclosed by the applicant or discovered during the investigation. Second, the IRS form 4506-T generally provides limited visibility into an applicant’s overall tax debt status because the form requires the requesting agency to identify the specific tax modules (generally, time periods) that the agencies are requesting to be disclosed, and, as such, agencies may not obtain the complete tax debt history of the individual. Finally, the IRS form 4506-T has a 120-day time limit from date of the applicant’s signature providing consent to process the form with the IRS. Officials from State stated that this limited time frame could hinder their ability to obtain the requested tax information if this form was provided at the time the security-clearance application was completed. As highlighted in our past work, it is important that the establishment of any federal tax-compliance check not delay the timeliness of security- clearance decisions. Specifically, timeliness concerns were one of the reasons that we designated the security-clearance process as high risk from 2005 to 2011. As we concluded in July 2012, delays in the security-clearance process could pose risks to national security, impede the start of classified work and hiring the best-qualified workers, and increase the government’s cost of national-security-related contracts.

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. TOP is an automated process administered by the Department of the Treasury in which certain federal payments, such as contractor and federal salary payments, are reduced to collect certain delinquent tax and nontax debts owed to federal agencies, including the IRS. Each week, the IRS sends the Department of the Treasury’s Bureau of the Fiscal Service office (Fiscal Service) an extract of its tax- debt files, which are uploaded into TOP and matched against Fiscal Service payment data (such as federal contractor payments, federal salary payments, and Social Security Administration retirement payments). If there is a match and the IRS has completed all statutory notifications, any federal payment owed to the debtor is reduced (levied) to help satisfy the unpaid federal taxes.

As we concluded in our past work, since TOP comingles information regarding tax debt and nontax debt, the existence of an employee’s name in TOP would generally not be considered taxpayer information subject to section 6103 of the tax code. Thus, TOP could be used to identify individuals who may owe federal debts, which includes federal taxes, without compromising privacy protections provided by section 6103. TOP currently reports a federal debt indicator (comprising both federal tax and nontax debts) to the System for Award Management (SAM) on whether a federal contractor or grant recipient has federal debts.

SAM is a government-wide database used to track the status of agency procurements.

As of September 2012, the IRS had referred approximately $167 billion (approximately 44 percent) of the $373 billion of the total unpaid tax assessment inventory in tax debts to TOP; thus, this program is an important repository of tax-debt data for federal workers and contractors. The IRS typically sends the tax debts to TOP except in cases where (1) the IRS has not completed its notification process,(2) tax debtors have filed for bankruptcy protection or other litigation, (3) tax debtors have agreed to pay their tax debt through monthly installment payments or have requested to pay less than the full amount owed through an offer in compromise, (4) the IRS determined that the tax debtors are in financial hardship, (5) tax debtors are filing an amended return, or (6) the IRS determined that specific circumstances (such as a criminal investigation) exist that warrant special exclusion from FPLP.

Thus, debts that are typically sent to TOP are those where the taxpayer has not shown a willingness to resolve his or her tax debts. As such, it is important that these individuals are identified because it can be an important factor in determining whether an individual should be eligible for a security clearance, as inability or unwillingness to satisfy debts is a potentially disqualifying factor according to the adjudicative guidelines. Our analysis found that 1,600 (approximately 20 percent) of the 8,400 taxpayers that had been granted security clearances during this 5-year period had tax debts that were referred to TOP.

A mechanism similar to or using TOP could be useful in identifying individuals who have not shown a willingness to resolve their tax debts and who are applying for a security clearance or already have one. This type of mechanism can be especially advantageous in monitoring clearance holders to identify circumstances (such as the nonpayment of federal taxes) that might warrant a reevaluation of an individual’s security- clearance eligibility.individuals (approximately 76 percent) had their tax debt accrued after the approval for the security clearance.

As discussed earlier, our analysis found that 6,375 While ODNI officials reported forming a working group with OPM and other federal agencies to explore an automated process for reviewing federal tax compliance, ODNI, IRS, and Fiscal Service officials stated that they have not explored the use of TOP for identifying individuals who owe federal debts, including tax debts. ODNI officials stated that they would be supportive of processes that automatically checked security-clearance applicants for federal tax debts. Fiscal Service officials stated that they did not foresee any potential operational issues with using TOP more broadly for these purposes. However, IRS and Fiscal Service officials stated that a legal analysis would need to be performed to determine if the TOP information could be used for the purpose of performing background investigations.

Separate from TOP, agencies may determine that a change in law is required to access taxpayer information without having to get consent from the individual. If it is determined that a change in law would be required, the IRS and federal agencies could consider various factors in determining whether they should seek legislative action for disclosing taxpayer information as part of the security-clearance process. Specifically, as we concluded in December 2011, it is important that Congress consider both the benefits expected from a disclosure of federal tax information and the expected costs, including reduced taxpayer privacy, risk of inappropriate disclosure, and negative effects on tax compliance and tax-system administration.

While knowingly making false statements on federal security-clearance forms is a federal crime and may deter some from lying about their tax debt, much of our prior work has focused on the inadequacies of using voluntary, self-reported information without independent verification and review. detection and monitoring component of our agency’s fraud-prevention framework and is a fraud-control best practice. Routinely obtaining federal debt information from the Department of the Treasury would allow investigative agencies to conduct this independent validation.

See, for example, GAO, Recovery Act Tax Debtors Have Received FHA Mortgage Insurance and First-Time Homebuyer Credits, GAO-12-592 (Washington, D.C.: May 29, 2012); Service-Disabled Veteran-Owned Small Business Program: Governmentwide Fraud Prevention Control Weaknesses Leave Program Vulnerable to Fraud and Abuse, but VA Has Made Progress in Improving Its Verification Process, GAO-12-443T (Washington, D.C.: Feb. 7, 2012); and Energy Star Program: Covert Testing Shows the Energy Star Program Certification Process Is Vulnerable to Fraud and Abuse, GAO-10-470 (Washington, D.C.: Mar. 5, 2010). holders to identify tax debt accrued after the initial clearance has been approved without having to wait until the reinvestigation. Additionally, we found that some individuals misrepresented the nature of their tax debt to investigators and adjudicators. Reliance on self-reporting and the relatively time-consuming and resource-intensive investigative interviewing process presents vulnerabilities that may be mitigated by additional mechanisms to expedite the security-clearance process. A mechanism such as TOP may provide an opportunity for federal agencies to improve their identification of federal debts, including tax debts, owed by security-clearance applicants. Enhancing federal agencies’ access to tax-debt information for the purpose of both investigating and adjudicating security-clearance applicants, as well as ongoing monitoring of current clearance holders’ tax-debt status, would better position agencies to make fully informed decisions about eligibility. This could include further exploration, through the existing working group, of routinely accessing TOP, or otherwise developing a legislative proposal, in consultation with Congress, to authorize access to tax-debt information.

Conclusions

Complete and accurate information on the tax-debt status of those applying for federal security clearances is important in helping limit potential vulnerabilities associated with granting clearances to those who might represent a security risk. Additional mechanisms to help investigative agencies access this information could help federal agencies apply the adjudicative guidelines, which call for weighing an individual’s federal tax debt as it relates to an individual’s financial and personal conduct when making security-clearance determinations. OPM and ODNI are currently overseeing several efforts to improve the investigative and adjudication process, including the development of a working group to explore options for establishing an automated process for reviewing federal tax compliance. 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. If these methods are found to be impractical, developing a legislative proposal, in consultation with Congress, to authorize access to tax-debt information could address existing legal barriers to such information.

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. If this is found to be impractical, ODNI should consider whether an exception to section 6103 is advisable and, if so, develop a legislative proposal, in consultation with Congress, to authorize access to tax-debt information.

Agency Comments and Our Evaluation

We provided a draft copy of this report to DHS, DOE, the IRS, ODNI, OPM, State, and the Department of the Treasury’s Fiscal Service for their review. Letters from DHS, ODNI, and OPM are reprinted in appendixes IV, V, and VI. Both ODNI and OPM concurred with our recommendation. In its response, ODNI stated that it will recommend that the working group consider routine access of TOP for purposes of investigating, adjudicating, and monitoring security-clearance holders and applicants. This action will likely address the recommendation we proposed. If the working group determines this action is not feasible, ODNI may want to consider drafting a legislative proposal to authorize access to tax-debt information. In addition, DHS, the IRS, and OPM provided technical comments on our draft, which we incorporated as appropriate. In e-mails received on August 12, 2013, August 9, 2013, and August 8, 2013, officials from DOE, State, and the Department of the Treasury’s Fiscal Service, respectively, said that they did not have any comments on the draft report.

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Appendix I: Federal Investigative Standards

The Office of Personnel Management (OPM), federal, or contract investigators conduct security-clearance investigations by using government-wide standards. OPM conducts background investigations for the majority of federal employees to determine their suitability for federal employment. OPM also conducts background investigations as part of the security-clearance process. For all these investigations, information that applicants provide on electronic applications is checked against numerous databases. Many investigation types contain credit and criminal-history checks, while top-secret investigations also contain citizenship, public-record, and spouse checks, as well as reference interviews and an in-person, Enhanced Subject Interview to gain insight into an applicant’s character. Although it is not standard, the Enhanced Subject Interview can also be triggered for lower-level investigations if an investigation contains issues that need to be resolved in accordance with the Federal Investigative Standards. Table 1 highlights the investigative components generally associated with the suitability, and with the secret and top-secret clearance levels.

Appendix II: Revised Adjudicative Guidelines for Determining Eligibility for Access to Classified Information

In making determinations of eligibility for security clearances, the national- security adjudicative guidelines require adjudicators to consider (1) guidelines covering 13 specific areas of concern; (2) adverse conditions or conduct that could raise a security concern and factors that may mitigate (alleviate) the condition for each guideline; and (3) general factors related to the whole person.

First, the guidelines state that eligibility determinations require an overall common-sense judgment based upon careful consideration of the following 13 guidelines in the context of the whole person: allegiance to the United States; personal conduct, such as deliberately concealing or falsifying foreign influence, such as having a family member who is a citizen of a foreign country; foreign preference, such as performing military service for a foreign country; sexual behavior; alcohol consumption; drug involvement; emotional, mental, and personality disorders; outside activities, such as providing service to or being employed by a relevant facts when completing a security questionnaire; financial considerations; criminal conduct; security violations; misuse of information-technology systems.

Second, for each of these 13 areas of concern, the guidelines specify (1) numerous significant adverse conditions or conduct that could raise a security concern that may disqualify an individual from obtaining a security clearance; and (2) mitigating factors that could allay those security concerns, even when serious, and permit granting a clearance. For example, the financial consideration guideline states that individuals could be denied security clearances on the basis of having a history of not meeting financial obligations. However, this security concern could be mitigated if one or more of the following factors were present: the behavior was not recent, resulted from factors largely beyond the person’s control (such as loss of employment), or was addressed through counseling.

Third, the adjudicator should evaluate the relevance of an individual’s overall conduct by considering the following general factors: the nature, extent, and seriousness of the conduct; the circumstances surrounding the conduct, to include knowledgeable participation; the frequency and recency of the conduct; the individual’s age and maturity at the time of the conduct; the voluntariness of participation; the presence or absence of rehabilitation and other pertinent behavioral changes; the motivation for the conduct; the potential for pressure, coercion, exploitation, or duress; and the likelihood of continuation or recurrence.

When the personnel-security investigation uncovers no adverse security conditions, the adjudicator’s task is fairly straightforward because there is no security condition to consider.

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?

To determine the magnitude of unpaid federal taxes owed by individuals approved for a security clearance, we obtained and analyzed OPM data of individuals eligible for a secret or top-secret security clearance due to a favorable adjudication, either during an initial investigation or a reinvestigation, from April 1, 2006, to December 31, 2011. Our review did not include the review of confidential clearance holders or public-trust positions. Department of Energy (DOE) and U.S. Nuclear Regulatory Commission (NRC) “Q” and “L” clearances are equivalent to the top- secret and secret clearances. Thus, for the purposes of our report, we considered “Q” and “L” clearances issued by DOE and NRC to be treated as top-secret and secret clearances, respectively. We identified the OPM Central Verification System (CVS) database as the appropriate data for our analysis after meeting with OPM officials and discussing the types of data available. We used this time frame because prior to April 1, 2006, the provision of the date a clearance was granted was not required and was therefore not consistently available for analysis. OPM provided us with an extract of the OPM database that included information only on executive-branch, non–Department of Defense (DOD), and non- intelligence-community employees and contractors who were eligible for a clearance during our time frame. 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. Specifically, we used the IRS Unpaid Assessment file as of June 30, 2012, to match against the OPM CVS data. The IRS Unpaid Assessment file used for our analysis contains all tax modules that are unpaid as of June 30, 2012. The June 30, 2012, file was used because it contained the most-recent unpaid assessment information at the time we conducted our analysis. To avoid overestimating the amount owed and to capture only significant unpaid federal taxes, we excluded from our analysis tax debts meeting specific criteria to establish a minimum threshold in the amount of tax debt to be considered when determining whether a tax debt is significant.

The criteria we used to exclude tax debts are as follows: (1) unpaid federal taxes the IRS classified as compliance assessments or memo accounts for financial reporting, and (2) recipients with total unpaid federal taxes of $100 or less. Specifically, compliance assessments or memo accounts were excluded because these taxes have neither been agreed to by the taxpayers nor affirmed by the court, or these taxes could be invalid or duplicative of other taxes already reported. We excluded tax debts of $100 or less because the IRS considers it a de minimis amount. Additionally, for the purposes of our engagement, we included individuals from the Business Master File (BMF) and Non-Master File (NMF), who were an exact Social Security number (SSN)/TIN match, as well as an exact name match with the OPM CVS data. We only included exact matches so we would be able to match and use the information from the OPM CVS database. Additionally, the Spouse Individual Master File (IMF) was not used in the magnitude analysis. This is because we were unable to determine which agency each spouse was affiliated with on the basis of the information available in both the IRS and OPM data. Additionally, the debt of a spouse may not have any effect on the security-clearance adjudication determination. As a result, the results reported may be understated.

Using these criteria, we identified about 8,400 of these individuals who had unpaid federal tax debt as of June 30, 2012. Our final estimate of tax debt does include some debt that is covered under an active IRS installment plan or beyond normal statutory time limits for debt collection. Our analysis determined the magnitude of known unpaid federal taxes owed by individuals in the OPM database and cannot be generalized to individuals that were granted eligibility for security clearances by DOD, the legislative branch, or the intelligence community.

To determine whether existing investigative and adjudication mechanisms detect unpaid tax debt during the security-clearance process and possible additional improvements to federal tax-debt detection mechanisms, we interviewed knowledgeable officials from the Office of the Director of National Intelligence (ODNI), which serves as Security Executive Agent for the federal government and has authority and responsibility over security-clearance protocols, and from OPM, which conducts security- clearance investigations for most federal agencies. In addition, we conducted interviews with officials from the Department of Homeland and Security (DHS), Department of Energy (DOE), and Department of State (State). DHS, DOE, and State were selected because these agencies had the highest number of security clearances adjudicated from April 1, 2006, to December 31, 2011, collectively representing over 50 percent of clearances granted in OPM’s CVS database, and also represented over 50 percent of the tax debt owed. In addition, we also reviewed and analyzed applicable laws, regulations, and ODNI guidance, as well as applicable policies and procedures for OPM, DHS, DOE, and State regarding the investigation and adjudication of security clearances. Finally, we conducted interviews with the Department of the Treasury’s Bureau of the Fiscal Service (Fiscal Service) and the IRS to obtain their views on any initiatives and barriers in sharing tax-debt information. We compared verification mechanisms with the fraud control framework we developed in our past work and other fraud control best practices. We also used Federal Investigative Standards (see app. I) and the Adjudicative Guidelines for Determining Eligibility for Access to Classified Information (see app. II) to evaluate the current mechanisms used to identify and evaluate unpaid federal tax debt as part of the security- clearance process.

To develop case-study examples, we identified a nonprobability sample of 13 individuals for detailed reviews from the above analyses of security- clearance holders from DHS, DOE, and State who had federal tax debt. We stratified our matches using the following characteristics: (1) adjudicating agency; (2) amounts of unpaid federal taxes in the IRS Unpaid Assessment database as of June 30, 2012; (3) type of security clearance granted or approved, clearance date, and dollar amount of unpaid tax debt; and (4) whether tax debt was recorded prior to or after the security-clearance grant date. We selected 12 cases from these four strata. Additionally, we randomly selected one case with indications that IRS was assessing a trust-fund recovery penalty. Once the nonprobability sample was selected, we requested all investigative and adjudicative case-file notes from the adjudicating agency; IRS notes, detailed account transcripts, and other records from the IRS; and security-clearance files from DHS, DOE, and State for these 13 individuals. For 2 of the 13 individuals that had accrued debt only after favorable adjudication, we reviewed the adjudicative files to determine whether the agency was aware of the federal tax debt through its reinvestigation. The clearance files and IRS paperwork were systematically reviewed using a structured data-collection instrument, looking at whether the tax debt was revealed in the investigative or adjudicative processes, and, if so, how it was handled in the adjudication. Each case file was independently reviewed by two analysts. After completion of each case review, the files were compared to identify discrepancies. Potential discrepancies between case-file reviews were resolved by a third-party reviewer. These cases were selected to illustrate individuals with unpaid federal tax debt that had security clearances but the results cannot be generalized beyond the cases presented.

Data-Reliability Assessment

To assess the reliability of record-level IRS unpaid assessments data, we used the work we perform during our annual audit of the IRS’s financial statements and interviewed knowledgeable IRS officials about any data- reliability issues. While our financial-statement audits have identified some data-reliability problems associated with tracing the IRS’s tax records to source records and including errors and delays in recording taxpayer information and payments, we determined that the data were sufficiently reliable to address this report’s objectives.

To assess the reliability of record-level OPM security-clearance data, we reviewed documentation from OPM, interviewed OPM officials who administer these information systems, and performed electronic testing of required elements. We determined that the data were sufficiently reliable to identify the individuals eligible for clearances with unpaid federal tax debt and select cases to illustrate potential vulnerabilities.

We conducted this performance audit from November 2011 to September 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our audit findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix IV: Comments from the Department of Homeland Security

Appendix V: Comments from the Office of the Director of National Intelligence

Appendix VI: Comments from the Office of Personnel Management

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