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ISCR Case 17-03205.a1 — CASE

ISCR Case 17-03205.a1denied

Case Headnote

ISCR Case No. 17-03205.a1

Apr 2, 2019· Hon. Michael Y. Ra'anan· appeal

Summary

A security clearance was denied for an applicant who served as the CEO and primary owner of a corporation, primarily under Guideline F (Financial Considerations) and Guideline E (Personal Conduct). The denial stemmed from significant, unresolved tax debts exceeding $700,000.

Despite the applicant making some payments, the judge determined that he had not demonstrated responsible action regarding his substantial and ongoing tax obligations. This raised concerns about his trustworthiness, a critical factor for individuals seeking access to classified information.

The appeal of the denial was ultimately unsuccessful, affirming the initial decision. The outcome underscored the importance of financial responsibility as a prerequisite for holding a security clearance, particularly when substantial financial obligations remain unresolved.

Conditions Referenced

Disqualifying

19(f)raisedFailure to Pay Annual Federal, State, or Local Income Tax as Required

Key Rule Quoted

“The general standard is that a clearance may be granted only when ‘clearly consistent with the interests of the national security.’”
— Department of the Navy v. Egan, 484 U.S. 518, 528 (1988)

Procedural Posture

SOR issuedDec 21, 2017
Answer filed—
Hearing heldJan 2, 2019
Decision dateApr 2, 2019

Cite For

Importance of Financial Responsibility Under Guideline F
Nexus Between Financial Obligations and Trustworthiness
Criteria for Evaluating Security Clearance Eligibility

Editorial summary generated for research. Not legal advice; not a prediction. Verify against the full decision before relying on any quoted language.

Appeal at a glance· Full written decision

Affirmed

The appeal involved an applicant seeking a security clearance who was denied due to ongoing tax debts. The applicant argued that the Judge erred in concluding that these debts raised security concerns and that the decision was arbitrary and capricious. The Board affirmed the Judge's decision, finding no harmful error in the analysis of the applicant's financial situation.

Appealed bythe applicant

Applicant representationAttorney

Judge belowEdward W. Loughran — denied the clearance

Decided ona hearing

Guidelines belowGuideline EGuideline F

What the Board reviewed

Judge mis-weighed or ignored evidence — raised by the applicantRejected
Applicant contended that the Judge erred in holding that his tax debts raise security concerns.
Decision arbitrary, capricious, or contrary to law — raised by the applicantRejected
Applicant argued that the Judge's adverse decision was arbitrary, capricious, or contrary to law.

Why the Board ruled this way

The Board found that the Judge did not err in concluding that Applicant’s ongoing tax debts raised security concerns. The Judge's decision was supported by substantial evidence and was not arbitrary or capricious.

Standard of review applied

Harmful-error gatekeeperSubstantial-evidence reviewArbitrary-and-capricious reviewProcedural complianceNo de-novo re-decisionDeference to the judge’s credibility calls

Appeal Board panel

Michael Y. Ra’anan — Chair
James E. Moody
James F. Duffy

Descriptive structured reading of this decided, public Appeal Board decision — what the case says, not a prediction or advice.

Full decision

The complete, official text — footnotes and signatures included — is in the original PDF.

Decision text, by section

DEFENSE OFFICE OF HEARINGS AND APPEALS

APPEAL

SYNOPSIS

KEYWORD: Guideline E; Guideline F DIGEST: The Judge did not err in concluding that Applicant’s ongoing tax debts raise concerns that he may be lacking in qualities expected of those with access to classified information. Indeed, the Directive presumes that there is a nexus between admitted or proved conduct under any of the Guidelines and an applicant’s eligibility for a clearance. Substantial tax obligations that have remained unresolved over several years, despite an apparent ability to have addressed them, are sufficient to uphold the Judge’s conclusion under Disqualifying Condition 19(f). Adverse decision affirmed. CASENO: 17-03205.a1 DATE: 04/02/2019 DATE: April 2, 2019 In Re: ------------------------

Applicant for Security Clearance ) ) ) ) ) ) ) ) ISCR Case No. 17-03025

APPEARANCES

FOR GOVERNMENT James B. Norman, Esq., Chief Department Counsel FOR APPLICANT Andrew J. Sherman, Esq. The Department of Defense (DoD) declined to grant Applicant a security clearance. On December 21, 2017, DoD issued a statement of reasons (SOR) advising Applicant of the basis for that decision—security concerns raised under Guideline F (Financial Considerations) and Guideline E (Personal Conduct) of Department of Defense Directive 5220.6 (Jan. 2, 1992, as amended) (Directive). Applicant requested a hearing. Subsequently, Department Counsel withdrew the Guideline E allegations. On January 2, 2019, after the hearing, Defense Office of Hearings and Appeals (DOHA) Administrative Judge Edward W. Loughran denied Applicant’s request for a security clearance. Applicant appealed pursuant to Directive ¶¶ E3.1.28 and E3.1.30. Applicant raised the following issues on appeal: whether the Judge erred by concluding that his circumstances raised security concerns and whether the Judge’s adverse decision was arbitrary, capricious, or contrary to law. Consistent with the following, we affirm. The Judge’s Findings of Fact The Judge made the following findings that are pertinent to the issues raised on appeal: Applicant was chief executive officer and primary owner of a Subchapter S corporation, which passes income, losses, deductions and credits on to shareholders. In 2011, he sold a division of this company, resulting in an adjusted gross income to him of nearly $6,000,000 and a tax liability of over $1,000,000. Although Applicant made some payments toward his tax debt, including a payment of $200,000, as of the close of the record he owed the IRS over $700,000 for tax year 2011. He also owed the IRS over $60,000 for 2012. Applicant testified that he relied on the advice of an accountant to address the tax liability resulting from the sale of the division. Rather than pay the full amount of tax due, Applicant spent the proceeds from the sale on investing in the remainder of the company, paying off the mortgage on his home, paying off credit cards and loans, and setting aside funds for his children’s college. The Judge’s Analysis The Judge concluded that Applicant’s circumstances raised Guideline F disqualifying conditions, including the one found at Directive, Encl. 2, App. A ¶ 19(f): “failure to pay annual Federal, state, or local income tax as required.” He found that Applicant had mitigated some of the SOR debts, though not those arising from his tax obligations. He concluded that Applicant’s tax liabilities are ongoing and continue to cast doubt on his trustworthiness and reliability. He also stated that Applicant had not demonstrated responsible action in regard to his tax problems.

DISCUSSION

Applicant contends that the Judge erred in holding that his tax debts raise security concerns. However, the Judge did not err in concluding that Applicant’s ongoing tax debts raise concerns that he may be lacking in qualities expected of those with access to classified information. Indeed, the Directive presumes that there is a nexus between admitted or proved conduct under any of the Guidelines and an applicant’s eligibility for a clearance. See, e.g., ISCR Case No. 17-02595 at 3 (App. Bd. Jul. 31, 2018) . Substantial tax obligations that have remained unresolved over several years, despite an apparent ability to have addressed them, are sufficient to uphold the Judge’s conclusion under Disqualifying Condition 19(f). See, e.g., ISCR Case No. ISCR Case No. 17-01256 at 3 (App. Bd. Aug. 3, 2018) (A person who fails repeatedly to fulfill his or her legal obligations, such as paying taxes when due, does not demonstrate the high degree of good judgment and reliability required of those granted access to classified information).

Applicant cites to record evidence that he argues is favorable to him, such as his reliance upon poor advice from his former accountant, his having hired a new one, and his efforts to address his debts. Applicant has not rebutted the presumption that the Judge considered all of the evidence in the record, nor has he shown that the Judge weighed the evidence in a manner that was arbitrary, capricious, or contrary to law. See, e.g., ISCR Case No. 17-04198 at 2 (App. Bd. Jan. 15, 2019). Moreover, despite Applicant’s argument to the contrary, the Judge’s whole person analysis complied with the requirements of Directive ¶ 6.3, in that he considered the totality of the evidence in reaching his decision. See, e.g., ISCR Case No. 15-03592 at 2 (App. Bd. Jun. 14, 2017). The record supports a conclusion that the Judge examined the relevant data and articulated a satisfactory explanation for the decision, “including a ‘rational connection between the facts found and the choice made.’” Motor Vehicle Mfrs. Ass’n of the United States v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)(quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). The Judge’s adverse decision is sustainable on this record. “The general standard is that a clearance may be granted only when ‘clearly consistent with the interests of the national security.’” Department of the Navy v. Egan, 484 U.S. 518, 528 (1988). See also Directive, Encl. 2, App. A ¶ 2(b): “Any doubt concerning personnel being considered for national security eligibility will be resolved in favor of the national security.”

ORDER

The Decision is AFFIRMED. Signed: Michael Y. Ra’anan Michael Y. Ra’anan Administrative Judge Chairperson, Appeal Board Signed: James E. Moody James E. Moody Administrative Judge Member, Appeal Board Signed: James F. Duffy James F. Duffy Administrative Judge Member, Appeal Board