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ISCR Case 11-11455.a1 — CASE

ISCR Case 11-11455.a1denied

Case Headnote

ISCR Case No. 11-11455.a1

Feb 4, 2014· Hon. Jeffrey D. Billett· appeal

Summary

A 46-year-old part owner of a Subchapter S corporation was denied a security clearance under Guideline F, Financial Considerations. The denial stemmed primarily from a significant, unresolved IRS tax lien totaling $42,256. This issue, along with other financial problems, raised concerns under disqualifying conditions F2 and F3.

While mitigating conditions F2 and F3 were considered, the judge determined that the applicant had not demonstrated a good-faith effort to resolve his financial issues in a timely manner. The financial problems were ongoing and recent, suggesting a likelihood of recurrence.

Ultimately, the judge found insufficient evidence that the applicant's financial difficulties would be resolved within a reasonable timeframe, leading to the denial of the security clearance.

Conditions Referenced

Disqualifying

F3raisedInability or Unwillingness to Satisfy Debts
F2raisedDelinquent Debts

Mitigating

F3rejectedThe Conditions That Resulted in the Financial Problems Were Largely Beyond the Applicant's ControlThe judge found that the applicant's tax debt was not caused by conditions beyond his control.
F2appliedThe Applicant Has Made Efforts to Resolve His Financial IssuesThe judge acknowledged some efforts but deemed them insufficient.

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 issuedJul 9, 2013
Answer filed—
Hearing heldNov 14, 2013
Decision dateFeb 4, 2014

Cite For

Denial of Security Clearance Due to Unresolved Tax Issues Under Guideline F
Insufficient Evidence of Financial Problem Resolution
Mitigating Factors Not Compelling Enough to Outweigh Disqualifying Conditions

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 financial considerations under Guideline F. The applicant argued that the Judge's decision was arbitrary and capricious. The Board affirmed the Judge's decision, finding no harmful error and that the Judge's conclusions were supported by substantial evidence.

Appealed bythe applicant

Applicant representationAttorney

Judge belowEdward W. Loughran — denied the clearance (split findings)

Decided ona hearing

Guidelines belowGuideline F

What the Board reviewed

Decision arbitrary, capricious, or contrary to law — raised by the applicantRejected
Applicant argued that the Judge's decision was arbitrary, capricious, or contrary to law.

Why the Board ruled this way

The Board found that the Judge's decision was supported by substantial evidence and that the Judge did not err in weighing the evidence or applying the law. The Board affirmed the unfavorable decision based on the applicant's significant unresolved tax problems and the lack of a good-faith effort to resolve them.

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

Michael Y. Ra’anan — Chair
Jeffrey D. Billett
James E. Moody

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 F DIGEST: The Appeal Board cannot consider new evidence on appeal. An ability to argue for an alterative interpretation of the evidence is not sufficient to show that the Judge erred. Hearing Office decision are not binding on other Hearing Office Judges or on the Appeal Board. Adverse decision affirmed. CASE NO: 11-11455.a1 DATE: 02/04/2014 DATE: February 4, 2014 In Re: ---------------- Applicant for Security Clearance ) ) ) ) ) ) ) ) ISCR Case No. 11-11455

APPEAL BOARD DECISION

APPEARANCES

FOR GOVERNMENT James B. Norman, Esq., Chief Department Counsel FOR APPLICANT Alan V. Edmunds, Esq. The Department of Defense (DoD) declined to grant Applicant a security clearance. On July 9, 2013, DoD issued a statement of reasons (SOR) advising Applicant of the basis for that decision—security concerns raised under Guideline F (Financial Considerations) of Department of Defense Directive 5220.6 (Jan. 2, 1992, as amended) (Directive). Applicant requested a hearing. On November 14, 2013, 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 the Directive ¶¶ E3.1.28 and E3.1.30. Applicant raises the following issue on appeal: whether the Judge’s decision is arbitrary, capricious, or contrary to law. For the following reasons, the Board affirms the Judge’s unfavorable security clearance decision. The Judge found: Applicant is 46 years old. He is part owner of a Subchapter S corporation, along with at least two other owners. One of the owners had a friend who acted as bookkeeper and prepared the corporate tax returns, as well as the owner’s individual tax returns. The bookkeeper did not prepare the tax returns for several years. In about 2010, the corporate and Applicant’s individual tax returns for several years were prepared and filed. Applicant stated that the bookkeeper incorrectly subscribed all of the corporation’s income to him, instead of dividing it among the owners. A witness verified Applicant’s description of the tax problems caused by his corporation and his corporations’s bookkeeper. Applicant stated that he did not note the discrepancy because he was heavily involved in a child custody battle. The IRS determined that Applicant owed taxes for several years. In July 2011, the IRS filed a $42,256 tax lien against Applicant. From 2010 to 2012, Applicant went through a contentious and costly child custody battle that cost him about $45,000. This expense added to his financial problems and prevented him from addressing his delinquent taxes. Applicant testified that he paid the IRS about $4,000 for his tax debt. He admitted that he had not made any payments since about 2011. Applicant contracted with a tax consulting company in February 2013 to represent him before the IRS. He also has an accountant who is preparing documents for the tax consulting company. The company agreed to review his tax records and negotiate with the IRS. The company may prepare amended tax returns that will lower his tax liability to about $21,000. Applicant stated that the tax company is close to arriving at an agreement with the IRS. He indicated that he will pay whatever amount is agreed upon. Applicant filed his 2011 federal income tax return in about September 2013. He states that there is no amount owing for 2011. He expects to file his 2012 federal income tax return within a few days. He expects to owe the IRS about $5,000. Applicant’s state tax situation is dubious. He has not filed state income tax returns in the state where he spends the most time because he considers his permanent residence to be in another state. He admits that he likely owes state income taxes. He states that he will address any delinquent state taxes after he resolves his federal taxes.1 The Judge concluded: Applicant relied on his corporation’s bookkeeper to prepare his tax returns and the bookkeeper did not fulfill his responsibilities in a timely manner. However, the responsibility to file his tax returns and pay his taxes ultimately rests on Applicant. His tax debt was not caused by conditions that were beyond his control. Applicant has known since at least 2010 that he had tax problems, and that they were of interest to DoD. There is insufficient evidence to determine that Applicant’s financial problems will be resolved within a reasonable period. He did not act responsibly under the circumstances and he did not make a good-faith effort to resolve all his financial problems. His financial issues are recent and ongoing, and it cannot be determined that they are unlikely to recur. Financial concerns remain despite the presence of some mitigation. Applicant’s significant unresolved tax problems are inconsistent with the holding of a security clearance. Applicant asserts that he has established a case for mitigation of the government’s security concerns. He states that his debts were caused by third parties and were out of his control, that the debts are lone incidents in a multiple decade career, are infrequent, and are in no way indicative of behavior likely to recur. He states that a payment plan is now in place, that an agreement with the IRS has been reached, and he has begun his payment plan. Applicant’s arguments do not establish error on the part of the Judge. Applicant’s statements regarding the tax payment plan, agreement with the IRS, and the commencement of payments under the plan are assertions of fact that fall outside the case record. The Board cannot consider new evidence on appeal. See Directive ¶ E3.1.29. The presence of some mitigating evidence does not alone compel the Judge to make a favorable security clearance decision. See, e.g., ISCR Case No. 06-25157 at 2 (App. Bd. Apr. 4, 2008). As the trier of fact, the Judge has to weigh the evidence as a whole and decide whether the favorable evidence outweighs the unfavorable evidence, or vice versa. See, e.g., ISCR Case No. 06- 10320 at 2 (App. Bd. Nov. 7, 2007). A party’s disagreement with the Judge’s weighing of the evidence, or an ability to argue for a different interpretation of the evidence, is not sufficient to demonstrate the Judge weighed the evidence or reached conclusions in a manner that is arbitrary, capricious, or contrary to law. See, e.g., ISCR Case No. 06-17409 at 3 (App. Bd. Oct. 12, 2007). Applicant’s appeal brief essentially argues for an alternate interpretation of the record evidence. In this case, the Judge made sustainable findings that Applicant had a significant history of not filing returns and not paying his income taxes in a timely fashion. He emphasized that Applicant’s case consisted largely of his intentions to pay off his taxes in the future and noted that such intentions were not a substitute for a track record of debt repayment. The Judge’s conclusion that Applicant’s tax difficulties were ultimately not matters beyond his control is sustainable on this record. The Judge listed the potentially applicable mitigating conditions and then discussed several components of those factors in his analysis, partially applying some of them. The Judge found in favor of Applicant as to three of the Guideline F allegations. However, the Judge offered a reasonable explanation as to why the disqualifying conduct under Guideline F as evidenced by tax delinquencies was not fully mitigated. Applicant has not demonstrated that the Judge erred when he weighed matters in mitigation against the seriousness of that disqualifying conduct. Applicant has cited to a Hearing Office case that, he contends, supports his effort to secure a reversal of the Judge’s decision. We give this case due consideration. However, hearing office cases are not binding on other Hearing Office Judges or on the Appeal Board. See, e.g., ISCR Case No. 11-10178 at 3 (App. Bd. Aug. 29, 2013). The cited case is not sufficient to show that the Judge erred in denying Applicant a clearance. The Board does not review a case de novo. The favorable evidence cited by Applicant is not sufficient to demonstrate the Judge’s decision is arbitrary, capricious, or contrary to law. See, e.g., ISCR Case No. 06-11172 at 3 (App. Bd. Sep. 4, 2007). After reviewing the record, the Board concludes 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 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). Therefore, the Judge’s ultimate unfavorable security clearance decision is sustainable.

ORDER

The decision of the Judge is AFFIRMED. Signed: Michael Y. Ra’anan Michael Y. Ra’anan Administrative Judge Chairperson, Appeal Board Signed: Jeffrey D. Billett Jeffrey D. Billett Administrative Judge Member, Appeal Board Signed: James E. Moody James E. Moody Administrative Judge Member, Appeal Board

FOOTNOTES

1 Three other debts were listed in the SOR in addition to Applicant’s delinquent federal income tax debt. The Judge found that these debts were either paid by Applicant or successfully disputed. The Judge made favorable formal findings regarding these debts.