CASE · Clearance Adjudication Search EngineCASE

Loading case…

ISCR Case 15-03208.a1 — CASE

ISCR Case 15-03208.a1unknown

Case Headnote

ISCR Case No. 15-03208.a1

Mar 7, 2017· Hon. Michael Y. Ra'anan· appeal

Summary

This security clearance case, decided under Guideline F (Financial Considerations), involved an applicant representing himself who faced issues due to substantial tax compliance problems. The applicant had an outstanding tax debt exceeding $200,000, which raised concerns about his judgment and reliability.

The appeal board reversed a prior favorable decision, concluding that the applicant failed to demonstrate a good-faith effort to resolve his significant tax debts. Key reasons for this reversal included the applicant's inability to show a genuine attempt to address the debt, and the judge's insufficient consideration of the cumulative evidence that contradicted the applicant's claims of financial prudence.

Furthermore, the applicant's testimony did not reflect a clear understanding of his tax obligations and the extent of his debts. Ultimately, no mitigating conditions were found to apply, and the security clearance was not granted.

Conditions Referenced

Disqualifying

AG ¶ 20raisedFinancial Considerations

Mitigating

AG ¶ 20(d)rejectedGood-faith Effort to Repay Overdue CreditorsThe applicant's evidence did not support a conclusion of prudence and reasonableness in addressing his tax debts.

Key Rule Quoted

“Failure to comply with Federal and/or state tax laws suggests that an applicant has a problem with abiding by well-established Government rules and regulations.”

Procedural Posture

SOR issuedFeb 24, 2016
Answer filed—
Hearing heldNov 21, 2016
Decision dateMar 7, 2017Appeal board decision reversed prior favorable ruling.

Cite For

Reversal of Favorable Decision Due to Tax Compliance Issues Under Guideline F
Insufficient Demonstration of Good-faith Effort in Financial Matters
Importance of Cumulative Evidence in Evaluating Financial Responsibility

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

Reversed

The appeal involved a security clearance denial based on financial considerations under Guideline F. The Administrative Judge initially granted the clearance, but the Department Counsel appealed, arguing that the Judge's conclusions were not supported by the evidence. The Appeal Board reversed the decision, finding that the Judge failed to adequately consider the applicant's financial history and compliance with tax obligations.

Appealed bythe Government (Department Counsel)

Applicant representationPro se (self-represented)

Judge belowRichard A. Cefola — granted the clearance

Decided ona hearing

Guidelines belowGuideline F

What the Board reviewed

Decision arbitrary, capricious, or contrary to law — raised by the Government (Department Counsel)Error sustained
The Judge's favorable applications of mitigating condition 20(d) and of the whole-person factors were contrary to the weight of the record evidence.

Why the Board ruled this way

The Judge's decision was reversed due to a failure to consider significant evidence that detracted from the favorable conclusions regarding the applicant's financial situation and compliance with tax laws. The Board found that the Judge did not evaluate the applicant's circumstances as a cumulative whole, leading to an erroneous application of mitigating factors.

Ignored material evidenceNo rational connection between facts and conclusion

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 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 F DIGEST: Failure to comply with tax laws suggests that a person has trouble abiding with rules and regulations. Timing of debt payment is a relevant consideration. A Judge must evaluate an applicant’s circumstances as a cumulative whole. A good-faith effort to pay debts means that an applicant has shown reasonableness and prudence. Favorable decision reversed. CASE NO: 15-03208.a1 DATE: 03/07/2017 DATE: March 7, 2017 In Re: ----------------

Applicant for Security Clearance ) ) ) ) ) ) ) ) ISCR Case No. 15-03208

APPEAL BOARD DECISION

APPEARANCES

FOR GOVERNMENT John Bayard Glendon, Esq., Deputy Chief Department Counsel FOR APPLICANT Pro se The Department of Defense (DoD) declined to grant Applicant a security clearance. On February 24, 2016, 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 21, 2016, after the hearing, Defense Office of Hearings and Appeals (DOHA) Administrative Judge Richard A. Cefola granted Applicant’s request for a security clearance. Department Counsel appealed pursuant to Directive ¶¶ E3.1.28 and E3.1.30. Department Counsel raised the following issues on appeal: whether the Judge’s favorable applications of mitigating condition 20(d) and of the whole-person factors were contrary to the weight of the record evidence. Consistent with the following, we reverse. The Judge’s Findings of Fact Applicant’s wife was self-employed, and she and Applicant were required to file taxes on a quarterly basis. They got behind and, in 2006, hired a one-man firm to address their problem. This person died, and the second firm that they hired went bankrupt in 2012. The next year they hired a third firm, which filed Federal and state income tax returns for tax years 2005 through 2009. Applicant is now current with his state tax authority. He established an installment plan with the IRS and was making payments of $734 in an effort to address his Federal tax debt of about $246,000. He has increased his payments to $1,000 a month to resolve the now $207,000 debt. The Judge’s Analysis The Judge extended favorable consideration to mitigating condition 20(d): “the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts[.]”1 He cited to evidence that Applicant has paid his state tax debt and has an installment plan for resolving his Federal obligation.

DISCUSSION

Department Counsel argues that the Judge’s decision did not address significant record evidence that detracted from his favorable conclusions. He contends that the Judge did not consider the evidence as a cumulative whole, thereby impairing his application of the mitigating condition at issue here as well as the whole-person factors. There is a strong presumption against the grant or maintenance of a security clearance. See Dorfmont v. Brown, 913 F. 2d 1399, 1401 (9th Cir. 1990), cert. denied, 499 U.S. 905 (1991). The applicant is responsible for presenting evidence to rebut, explain, extenuate, or mitigate admitted or proven facts. The applicant has the burden of persuasion as to obtaining a favorable decision. Directive ¶ E3.1.15. The standard applicable in security clearance decisions “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 access to classified information will be resolved in favor of the national security.” Directive, Enclosure 2 ¶ 2(b). In deciding whether the Judge's rulings or conclusions are erroneous, we will review the decision to determine whether: it does not examine relevant evidence; it fails to articulate a satisfactory explanation for its conclusions, including a rational connection between the facts found and the choice made; it does not consider relevant factors; it reflects a clear error of judgment; it fails to consider an important aspect of the case; it offers an explanation for the decision that runs contrary to the record evidence; or it is so implausible that it cannot be ascribed to a mere difference of opinion. See ISCR Case No. 14-02563 at 3-4 (App. Bd. Aug. 28, 2015). Security requirements include consideration of a person’s judgment, reliability, and a sense of his or her legal obligations. See Directive, Enclosure 2 ¶ 18.2 See also Cafeteria & Restaurant Workers Union, Local 473 v. McElroy, 284 F.2d 173, 183 (D.C. Cir. 1960), aff’d, 367 U.S. 886 (1961). Failure to comply with Federal and/or state tax laws suggests that an applicant has a problem with abiding by well-established Government rules and regulations. Voluntary compliance with rules and regulations is essential for protecting classified information. See, e.g., ISCR Case No. 14-04437 at 3 (App. Bd. Apr. 15, 2016). Consideration of an applicant’s judgment and reliability requires a Judge to consider the evidence as a whole rather than in a piecemeal fashion. See, e.g., ISCR Case No. 12-04813 at 4 (App. Bd. Jul. 31, 2015). Department Counsel cites to various pieces of evidence that he believes undermine the Judge’s favorable decision. For example, Applicant and his wife “fell behind” on their taxes in 2005, a circumstance that continued until 2009. In addition, Applicant owes the IRS over $38,000 for 2010 and $33,000 for 2012. The reason for this delinquency was never fully explained. In his clearance interview, conducted in 2014, Applicant attributed it to their reliance on the three tax preparation firms they had employed. Interview Summary at 4, included in Government Exhibit (GE) 2, Answers to Interrogatories. At the hearing, however, he intimated that the problem originated with himself and his wife. We . . . realized that we [fell] behind on our taxes. And, honestly, we weren’t aware that – well, we knew we should have filed them quarterly and didn’t. And we realized that we got in over our head. And, basically, that’s kind of how it happened. Tr. at 34. Applicant did not substantially elaborate on this explanation. His IRS transcript for 2005 shows that the couple neither filed nor paid taxes for that year until 2010, at which time they paid only a portion of the amount owed. The total amount still owed as of January 2016, excluding interest and penalties, is nearly $57,000. IRS Account Transcript for 2005, dated January 8, 2016, included in GE 2. Subsequent transcripts show substantial delinquencies for the years following. Even if one finds Department Counsel’s brief to be speculative in some regard,3 it does underscore the extent to which Applicant’s evidence in mitigation leaves serious questions unanswered. That is, Applicant placed much of the blame on his tax preparers, an explanation that the Judge appeared to accept. However, it is clear from the record that he had significant tax delinquencies before hiring his first tax preparer. Indeed, when including interest and penalties, his debt for 2005 alone is nearly $70,000. 2005 Account Transcript. As Department Counsel argues, the record evidence discloses no obvious reason that Applicant could not find a suitable replacement following the death of his first advisor and why he entrusted his tax obligations to persons who failed over a course of years to ensure his compliance with tax laws. See, e.g., ISCR Case No. 06-19154 at 5 (App. Bd. Apr. 9, 2008), in which we stated that, in regard to tax advisors, “an applicant must show that he has in good faith engaged the services of someone who is actually able to provide beneficial advice.” Assuming without deciding that a large measure of Applicant’s problems can be laid at the feet of his tax preparers, we note his testimony that he engaged the services of the first one in 2006, yet his tax delinquencies persisted for several years thereafter, swelling to over $200,000. Department Counsel explicitly challenges the Judge’s favorable application of mitigating condition 20(d), quoted above. The Directive does not define “good-faith,” but, in the case just cited, we described it to mean “that an applicant’s conduct with regard to his financial situation shows, among other things, reasonableness and prudence.” Id. In the case before us, there is substantial evidence that undermines Applicant’s claim to have acted reasonably and prudently. First is his testimony quoted above to the effect that he was aware of his obligation to file quarterly returns, and that he and his wife had actually been doing so for two years prior to 2005. Nevertheless, they stopped making these payments, for reasons not explained. Tr. at 34. Second, this failure persisted for several years, despite Applicant’s awareness of his legal obligations, and he amassed tax delinquencies in excess of $200,000, as noted above. Third, even at the hearing, Applicant did not display a clear understanding of his tax problems, for example how much he had paid and how much he owed.4 In drawing his favorable conclusions under 20(d), the Judge relied on evidence that Applicant entered into a payment plan with the IRS after the hearing. However, as Department Counsel argues, there is no evidence of even a single payment under the plan. See, e.g., ISCR Case No. 14-04565 at 2 (App. Bd. Sep. 18, 2015) (Promises to pay off delinquent debts in the future are not a substitute for a track record of paying debts in a timely manner and otherwise acting in a financially responsible manner). We also note that, in his correspondence with the IRS, Applicant had previously advised them that he could not afford to pay more than the $734 that he had been paying under a previous one, raising a question as to whether he will be able to comply with the new plan. See AE D, Letter to IRS, dated January 8, 2015. Moreover, Department Counsel observes that Applicant’s concern with resolving his tax problems by means of a new installment agreement appeared to coincide with his effort to obtain a clearance. AE E, Letter to IRS, dated March 4, 2016. See ISCR Case No. 14-01243 at 3 (App. Bd. Jun. 18, 2015) (Timing of debt payments is relevant in evaluating an applicant’s case for mitigation). Evidence suggesting that, after years of apparent inattention, Applicant was finally energized to come to terms with the IRS when his clearance might be imperiled raises questions about his willingness to follow the sometimes complex rules governing classified information when his personal interests are not at stake. See, e.g., ISCR Case No. 15- 01070 at 4 (App. Bd. Mar. 9, 2016), in which we observed that an applicant who waits until his clearance is in jeopardy before resolving debts might be lacking in the judgment expected of those with access to classified information. The evidence taken as a whole does not support the Judge’s conclusion that Applicant’s circumstances justified a per se application of mitigating condition 20(d), in light of significant record evidence that impugns Applicant’s prudence and reasonableness. Moreover, we are persuaded by Department Counsel’s argument that the Judge failed to examine Applicant’s circumstances as a cumulative whole, thereby devoting insufficient attention to evidence which detracted from Applicant’s case for mitigation. To sum up, Applicant and his wife were making quarterly payments to the IRS for two years. However, in 2005, they stopped doing so, for no reason other than they got behind. They hired a series of tax advisors yet persisted in failing to file and pay taxes as required by law, amassing a tax debt to the Federal Government in excess of $200,000. Applicant and his wife entered into an installment agreement with the IRS, which the agency cancelled in light of having recalculated the couple’s 2012 tax obligations. Motivated at least in part by concern over losing Applicant’s clearance, they entered into an new installment agreement after the hearing. He submitted no evidence of payments under the plan. Applicant’s testimony at the hearing did not evidence a firm grasp on the origin or extent of his tax problems. This evidence suggests the real possibility that Applicant has difficulty complying with Government rules and regulations. Applicant’s evidence does not support the Judge’s conclusion that he has demonstrated the prudence and reasonableness required by mitigating condition 20(d) and the whole-person concept. The Judge’s conclusory decision fails to consider important aspects of the case and runs contrary to the weight of the record evidence. Accordingly, the decision is not sustainable.

ORDER

The Decision is REVERSED. Signed: Michael Ra’anan Michael 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

FOOTNOTES

1 Directive, Enclosure 2 ¶ 20(d).

2 The concern under Guideline F is that “[f]ailure or inability to live within one’s means, satisfy debts, and meet financial obligations may indicated poor self-control, lack of judgment, or unwillingness to abide by rules and regulations, all of which can raise questions about an individual’s reliability, trustworthiness and ability to protect classified information.”

3 “Applicant’s excuses that he was poorly served by two tax advisors who disappeared due to death or bankruptcy over a period of six years . . . have no mitigating value. He had plenty of time during that period to have insisted that his tax advisors do the job they were hired to do or to find competent replacements. The more likely reason for the delay is that Applicant failed to provide the necessary documentation for the tax consultants to do their work.” Appeal Brief at 12.

4 “[Department Counsel]: During those two years, were you filing the quarterly returns? [Applicant]: I believe so, but, based on, you know, the information that we have now, I believe so. Yes . . . [Department Counsel]: So, you believe you were filing quarterly? [Applicant]: Yes . . . [Department Counsel]: When did you stop filing those? [Applicant]: Let’s see. I’m not positive on that. I believe it was–I think it was 05 . . . [Department Counsel]: When you were filing your tax returns before then, when you were filing them quarterly, did you know that you had owed taxes at that point in time? [Applicant]: No. No, we did not discover it at the time. [Department Counsel]: How were you calculating how much to pay on your taxes? [Applicant] That’s a good question. That was mostly my wife’s doing. I didn’t really take charge of the taxes . . .” Tr. at 33-35. “[Department Counsel]: Do you have an idea of how much you have paid since you started this payment plan? [Applicant]: No, I don’t. [Department Counsel]: Do you know about how much you still owe? [Applicant]: . . . I believe it’s $207,000[. .” Tr. at 41. As Department Counsel notes, $207,000 is the amount that Applicant disclosed in his security clearance application as his debt to the IRS as of 2014. Appeal Brief at 6; Security Clearance Application, dated August 4, 2014, at 29. Department Counsel persuasively argues that, given the Judge’s finding that Applicant’s debt had reached $246,000, it was unlikely that he could have paid it down by nearly $40,000 making only those payments of $734 that were required by his original installment agreement. There is no evidence of additional payments, leaving the precise total amount owed to the IRS uncertain based on the record that was before the Judge. Appeal Brief at 6.