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ISCR Case 22-02021 — CASE

ISCR Case 22-02021denied

Case Headnote

ISCR Case No. 22-02021

Jul 27, 2023· Hon. Gregg A. Cervi· appeal

Summary

A defense contractor in his early 40s was denied a security clearance under Guideline F (Financial Considerations) due to a consistent failure to file federal income tax returns from 2012 to 2020. The appeal board upheld this denial, citing the applicant's demonstrated pattern of unreliability and poor judgment regarding his tax obligations, which are considered critical factors for national security eligibility.

The denial was based on Disqualifying Condition F1, which addresses a history of not meeting financial obligations. While Mitigating Conditions F2 (the financial problem was not caused by the applicant's negligence) and F3 (the applicant has resolved or is in the process of resolving the debt) were considered, they were ultimately not sufficient to overcome the security concerns.

The judge determined that the applicant's claims of addressing the tax issues were uncorroborated and insufficient. Crucially, there was no evidence presented that the applicant had taken concrete steps to ensure timely filing of his tax returns in the future, reinforcing the pattern of unreliability.

Conditions Referenced

Disqualifying

F1raisedFailure to File or Pay Taxes

Mitigating

F3rejectedInability to Pay the Taxes OwedThe applicant did not provide evidence of a good-faith effort to resolve tax deficiencies.
F2rejectedThe Individual Has Made Arrangements with the Appropriate Tax Authority to File and Is in Compliance with Those ArrangementsThe applicant failed to demonstrate any arrangements to address tax deficiencies.

Key Rule Quoted

“It is untenable for an applicant to refuse to accept his or her legal obligation to comply with the federal tax laws and then insist that the federal government must grant him or her the privilege of handling classified information.”
— ISCR Case No. 98-0810, 2000 WL 1247732 at *4 (App. Bd. Jun. 8, 2000)

Procedural Posture

SOR issuedDec 12, 2022
Answer filed—
Hearing held—
Decision dateJul 27, 2023Appeal decision

Cite For

Failure to File Federal Income Tax Returns as a Disqualifying Condition Under Guideline F
Insufficient Evidence of Good-faith Efforts to Resolve Tax Issues
Importance of Compliance with Tax Obligations for National Security 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 a denial of a security clearance based on financial considerations, specifically the Applicant's failure to file federal income tax returns from 2012 to 2020. The Applicant's counsel argued that the Judge did not properly consider evidence and mitigating factors. The Board affirmed the Judge's decision, finding no harmful error in the ruling.

Appealed bythe applicant

Applicant representationAttorney

Judge belowDarlene Lokey Anderson — denied the clearance

Decided ona hearing

Guidelines belowGuideline F

What the Board reviewed

Judge mis-weighed or ignored evidence — raised by the applicantRejected
Counsel contends that the Judge failed to properly consider all available evidence and apply mitigating conditions.
Decision arbitrary, capricious, or contrary to law — raised by the applicantRejected
Counsel argues that the Judge's findings were arbitrary and capricious.
Mitigation wrongly applied / not applied — raised by the applicantRejected
Counsel asserts that the Judge failed to apply the mitigating conditions appropriately.

Why the Board ruled this way

The Board found that the Judge properly considered the evidence and applied the relevant legal standards, concluding that the Applicant's failure to file tax returns demonstrated a lack of reliability and trustworthiness.

Standard of review applied

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

Appeal Board panel

James F. Duffy — Chair
Gregg A. Cervi
Allison Marie

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

APPEARANCES

_______________________________________ ) In the matter of: )

)

----- )

ISCR Case No. 22-02021

)

) Applicant for Security Clearance ) _______________________________________) Date: July 27, 2023

APPEAL BOARD DECISION

APPEARANCES

FOR GOVERNMENT James B. Norman, Esq., Chief Department Counsel FOR APPLICANT Samir Nakhleh, Esq. The Department of Defense (DoD) declined to grant Applicant a security clearance. On December 12, 2022, DoD issued a Statement of Reasons (SOR) advising Applicant of the basis of that decision – security concerns raised under Guideline F (Financial Considerations) of the National Security Adjudicative Guidelines (AG) in Appendix A of Security Executive Agent Directive 4 (effective June 8, 2017) and DoD Directive 5220.6 (Jan. 2, 1992, as amended) (Directive). On June 9, 2023, Defense Office of Hearings and Appeals Administrative Judge Darlene Lokey Anderson denied Applicant’s security clearance eligibility. Applicant appealed pursuant to Directive ¶¶ E3.1.28 and E3.1.30. Applicant, in his early 40s, is employed as a defense contractor and has held a security clearance since 2007. In his July 2021 security clearance application, Applicant disclosed that he had failed to file his Federal income tax returns since 2014, citing a lack of knowledge on how to file the returns properly and asserting that he had contacted a tax attorney to help him address the outstanding returns. See File of Relevant Material (FORM) Item 3 at 34-36. One year later, in July 2022, Applicant responded to Government interrogatories and disclosed that he had still not filed his delinquent returns, now including those for tax years 2012 and 2013, and again represented

that he was “contacting multiple tax agencies who may be able to help” him file correctly. FORM Item 4 at 3-20. Based on the foregoing, the SOR alleged that Applicant failed to timely file his Federal income tax returns for tax years 2012 through 2020. As of his December 2022 answer to the SOR, Applicant asserted, without elaborating, that returns for all of the years alleged were in the process of being filed. The Judge found that Applicant was aware of the requirement to timely file his tax returns and there was no documentation corroborating that he had taken any steps to ensure the alleged returns are being filed or that Applicant’s returns will be timely filed going forward. Decision at 5. The Judge ruled adversely on the SOR allegation and concluded that Applicant’s “inaction for so long reflects a pattern of unreliability, untrustworthiness, and poor judgment,” and he therefore “does not meet the requirements to access classified information.” Id. On appeal, Counsel for Applicant contends that the Judge failed to properly consider all available evidence and failed to properly apply the mitigating conditions and whole-person analysis. As discussed more fully below, Counsel’s arguments are frivolous. For example, Counsel argues that the Judge placed too much weight on the fact that Applicant’s returns were unfiled and “chose to disregard that [Applicant’s] taxes would not lead to a debt” and that his Transcripts show that he does “not have a current outstanding debt.” Appeal Brief at 9. This argument fails for multiple reasons. First, it is well-settled that an individual who is unwilling to fulfill his legal obligations to the Federal Government – such as timely filing income tax returns – does not demonstrate the high degree of good judgment and reliability required of persons granted access to classified information. See, e.g., ISCR Case No. 98-0810, 2000 WL 1247732 at *4 (App. Bd. Jun. 8, 2000) (“It is untenable for an applicant to refuse to accept his or her legal obligation to comply with the federal tax laws and then insist that the federal government must grant him or her the privilege of handling classified information.”). The Directive cites failure to file tax returns as a disqualifying condition in and of itself, irrespective of whether the underlying taxes have actually been paid, such as through withholding. Indeed, an applicant’s legal obligation to timely file income tax returns is independent from whether or not he owes additional taxes. See, e.g., ISCR Case No. 94-0964, 1996 WL 648762 at *5 (App. Bd. Jul. 3, 1996). Even if the record in this case supported that Applicant owed no debt for the deficient tax years alleged in the SOR (it does not), the lack of any tax balance does not nullify the concern raised by his knowing and repeated failure to abide by his tax filing obligation for almost a decade. Second and to that end, Counsel’s argument that Applicant has no outstanding tax debt and that filing his delinquent returns will not result in any balance being assessed is not persuasive. While Applicant’s Transcripts do reflect that no balances are owed for the years in question, they also reflect that no returns, including IRS substitute tax returns, have been filed for those years. See FORM Item 4 at 4-20. Without the returns being filed, thereby providing the underlying data with which to calculate Applicant’s tax obligations, the $0 account balance reported in each transcript is not sufficient to establish that Applicant owes no Federal tax debt for those years. Finally, Counsel argues that the Judge “failed to make a rational finding” regarding AG ¶ 20(d), which permits mitigation if “the individual initiated and is adhering to a good-faith effort to repay overdue creditors or otherwise resolve debts.” Appeal Brief at 8. In support of this argument,

Counsel asserts that Applicant has “successfully completed a good-faith arrangement to pay back prior and future debts through proper withholding.” Appeal Brief at 8. Counsel cites to a line entry in Applicant’s 2015 transcript that reflects, “Withholding allowances limited – letter sent to employer” on August 12, 2015. See FORM Item 4 at 14. Because there are no delinquent debts alleged in the SOR, it is unclear why Counsel elected to focus his challenge on AG ¶ 20(d) instead of AG ¶ 20(g), which specifically applies to tax filing concerns and allows similarly for mitigation when “the individual has made arrangements with the appropriate tax authority to file . . . and is in compliance with those arrangements.” Regardless, Counsel’s challenge under either mitigating condition fails because there is no evidence that Applicant has made any arrangement to address any of his tax deficiencies. Despite Counsel’s undue reliance on this line item and blanket statement that “Applicant has no outstanding debt due because [he] has already completed a good-faith arrangement to prevent future tax debts via proper tax withholding” (Appeal Brief at 8), the record is devoid of information regarding the impact of this notice on any tax assessment resulting from Applicant’s tax filing deficiency for that tax year or any of the other years alleged in the SOR. Applicant has failed to meet his burden of demonstrating error below. The Judge examined the relevant evidence and articulated a satisfactory explanation for the decision, which 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). “Any doubt concerning personnel being considered for national security eligibility will be resolved in favor of the national security.” AG ¶ 2(b).

ORDER

The decision is AFFIRMED. Signed: James F. Duffy James F. Duffy Administrative Judge Chair, Appeal Board Signed: Gregg A. Cervi Gregg A. Cervi Administrative Judge Member, Appeal Board Signed: Allison Marie Allison Marie Administrative Judge Member, Appeal Board