Tax evasion and old debt

SECURITY CLEARANCE Q&A
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I’m in process for a clearance that requires FS poly. I’ve had TS/SCI clearances for years with CI poly but first time for FS.

Just had a long interview with an investigator and would appreciate any advice on what can be done to mitigate some negative information that carne up.

What has me most concerned is over claiming tax deductions. For several years I took the full amount of “real estate taxes” reported by my bank on 1098 form and itemized it. However, that amount includes about $300 annually that is for trash collection and therefore not deductible. (Separate line item on the property tax bill).

I’m sure many people are not aware of this detail in the rules and do what I do. I even hired someone to do my taxes one year and they said I could deduct the whole thing. Up until that point, I followed the rule but at some point afterwards just started deducting the full amount. I was completely candid with the investigator and admitted that I claimed the full amount even though I believed the accountant to be wrong. I claimed incorrectly from 2007-2017, only stopping when the doubling of the standard deduction caused me to stop itemizing.

Any thoughts on how bad this is and what can be done to mitigate? I’m getting my old returns together so I can file amended returns. Will doing this help?

I also told the investigator that I incorrectly claimed a tax credit in 2009 and 2010. In 2009 it was an honest mistake but in 2010 I told her I knew at a minimum that I should look into it more as I wasn’t sure of the rules. At the time of the interview I thought I had claimed it incorrectly. But just last night was able to confirm after some research that I actually did claim it correctly. I am trying to contact the investigator to get this error corrected in her documentation.

Another negative thing that came up is some unpaid debt from 2010. When my wife did a one year certificate program I never got a bill for the last tuition payment and so never paid it. Bill would have been about $2000. I told the investigator that I set aside the money to pay it and waited for the bill with the intent to pay it, but never got the bill so never paid it.

Not sure what my legal obligations are to pay a bill never presented to me, but I assume it would be considered unpaid debt. This was a for profit school that went bankrupt. So not sure if I could pay this debt. I’m hoping it will help my case that I did have the intent to pay when I got the bill.

Any thoughts on how serious this is and is there anything I should do about it?

Reading this blog I see that tax and debt issues are the #1 reason for clearance denials. How much does the passage of time count as a mitigating factor?

The other issue discussed at length was many years of heavy drinking. As that ended 15 years ago I am not so worried about that.

Any advice or comment is appreciated.

Thanks

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Lots to unpack there. I’d get a tax attorney who can tell you what years require correction. Fix it, pay penalties or challenge them if you are self reporting. You became aware, you put effort into getting it corrected. Paid x amount on y date. Once IRS says paid in full…its done.

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Blatant disregard and negligence regarding government debt and financial obligations are the most common reasons for denial. It doesn’t really sound like you fall in that category. Just take care of things and do your best. It sounds like you have been doing so for many years already.

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Thanks for the advice. I talked to a security clearance lawyer last week. He wasn’t too concerned about the old debt because it occured long ago and it probably impossible to pay as the company is bankrupt. He was concerned about the underpayment of taxes because it happened over many years, so they may look as it as a pattern. I admitted to the investigator that while I was initially advised by a tax preparer that I could deduct the entire amount on the 1098 form, I didn’t every really believe her. So in substance I admitted to cheating on my taxes. I have to imagine the small amount of money and the fact that bad advice was a factor will help me out a little. The killer though is the many years it went on.

At this point, I am working on filing amended returns and have contacted a CPA to help. Payment of the unpaid taxes is listed as a mitigating factor, and at this point it’s the best I can do. I already have an unclass job lined up as a backup in case I get a denial and it impacts my current job, so that will help me not stress too much during the months it will take for my case to work its way through the system. Fortunately my current job has plenty of unclass work to do.

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The current US tax system is so complicated and subjective that no one can claim with absolute certainty that they have completed and paid their taxes with 100 percent accuracy 100 percent of their lifetime. It’s a sad fact. A VAT or Flat tax seems so much more practical than what we have now.

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Get it fixed, bring documentation and it can mitigate a lot of it.

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