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ISCR Case 16-01617.h1 — CASE

ISCR Case 16-01617.h1denied

Case Headnote

ISCR Case No. 16-01617.h1

deniedJul 31, 2017· Hon. Martin H. Mogul· hearing

Summary

A 30-year-old defense contractor was denied a security clearance under Guideline F, Financial Considerations, due to a history of failing to timely file federal and state tax returns. Specifically, the applicant did not file federal tax returns for 2013, 2014, and 2015, nor did they file State A tax returns for the same years, as legally required. These actions raised concerns about the applicant's reliability and judgment.

While the applicant eventually filed the overdue returns and established a payment plan, these resolutions occurred only after the Statement of Reasons (SOR) was issued. The adjudicator applied Disqualifying Condition AG ¶ 19(f) and considered Mitigating Condition AG ¶ 20(g).

Ultimately, the clearance was denied because the applicant's procrastination and lack of timely action demonstrated poor judgment. The judge found insufficient evidence to assure future compliance with tax obligations, despite the steps taken to resolve the outstanding debts.

Why the Applicant Was Denied

The applicant failed to timely file federal and state tax returns for tax years 2013, 2014, and 2015.
The applicant's resolution of tax issues occurred only after the issuance of the Statement of Reasons (SOR), raising doubts about future compliance.
The applicant's procrastination and lack of timely action indicated poor judgment.

Conditions Referenced

Disqualifying

AG ¶ 19(f)raisedFailure to File or Fraudulently Filing Annual Federal, State, or Local Income Tax Returns or Failure to Pay Annual Federal, State, or Local Income Tax as Required

Mitigating

AG ¶ 20(g)rejectedThe Individual Has Made Arrangements with the Appropriate Tax Authority to File or Pay the Amount Owed and Is in Compliance with Those ArrangementsThe resolution of tax issues occurred only after the issuance of the SOR, not prior.

Key Rule Quoted

“Any doubt concerning personnel being considered for national security eligibility will be resolved in favor of national security.”

Procedural Posture

SOR issuedAug 23, 2016
Answer filedOct 20, 2016
Hearing heldMar 21, 2017
Decision dateJul 31, 2017

Cite For

Failure to Timely File Tax Returns Under Guideline F
Insufficient Evidence of Future Compliance with Tax Obligations
Poor Judgment Indicated by Procrastination in Financial Matters

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

Standardized Decision Profile

SEAD-4 Guideline F · descriptive summary of a decided case

Posture: Decision on RecordDecided: denied

The judge found against the applicant on financial considerations due to his failure to timely file Federal and State tax returns for multiple years. Although the applicant filed his overdue tax returns and set up payment plans, the judge determined that these actions were taken only after the issuance of the Statement of Reasons, raising concerns about the applicant's future compliance with tax obligations.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	Applicant knowingly and willfully failed to timely file his Federal tax returns for tax years 2013, 2014, and 2015.	Against Applicant	Tax Filing Failure	Admitted	(f) failure to file / fraudulent filing of tax returns or unpaid tax	—	—
1.b	Applicant failed to timely file State A tax returns for tax years 2013, 2014, and 2015, as legally required.	Against Applicant	Tax Filing Failure	Admitted	(f) failure to file / fraudulent filing of tax returns or unpaid tax	—	—

Descriptive standardized rendering of a decided public case (Guideline F). The verbatim source decision is shown in full below.

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

HEARING

APPEARANCES

DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS

In the matter of: ) ) ) ISCR Case No. 16-01617 ) ) Applicant for Security Clearance )

For Government: Jeff A. Nagel, Esq., Department Counsel For Applicant: Ryan C. Nerney

July 31, 2017 ______________

STATEMENT OF CASE

______________

MOGUL, Martin H., Administrative Judge:

Statement of the Case

On August 23, 2016, in accordance with Department of Defense (DoD) Directive 5220.6, as amended (Directive), the DoD issued Applicant a Statement of Reasons (SOR) alleging facts that raise security concerns under Guideline F.1 The SOR further informed Applicant that, based on information available to the government, DoD adjudicators could not make the preliminary affirmative finding it is clearly consistent with the national interest to grant or continue Applicant’s security clearance.

Applicant replied to the SOR on October 20, 2016, and requested a hearing before an administrative judge. (RSOR.) The case was assigned to me on November 21, 2016. The Defense Office of Hearings and Appeals (DOHA) issued a notice of

1 I considered the previous Adjudicative Guidelines, effective September 1, 2006, as well as the new hearing on February 6, 2017, and the hearing was held as scheduled on March 21, 2017.

At the hearing, the Government offered Exhibits 1 through 3, which were admitted without objection. Applicant testified on his own behalf and presented seventeen documents, which were identified and entered into evidence without objection as Exhibits A through L. The record was left open until April 14, 2017, for receipt of additional documentation. Several additional documents were timely received and have been entered into evidence without objection as Exhibits M through O. DOHA received the transcript of the hearing (TR) on March 29, 2017. Based upon a review of the pleadings, exhibits, and the testimony of Applicant, eligibility for access to classified information is denied.

FINDINGS OF FACT

After a complete and thorough review of the evidence in the record, as described above, and upon due consideration of that evidence, I make the following findings of fact:

Applicant is 30 years old. He is unmarried, and he has one three year old daughter, who lives with her mother. Applicant pays $700 a month for child support. Applicant's daughter lives in a state a great distance away from him, and Applicant makes an attempt to see her every other month. He is a high school graduate, and he attended trade school to become an Air Frame and Power Plant Technician. Applicant is employed by a defense contractor, and he seeks a DoD security clearance in connection with his employment in the defense sector. (Tr at 19-24.)

Guideline F, Financial Considerations

The SOR lists two allegations (1.a. and 1.b.) regarding financial difficulties under Adjudicative Guideline F. Both SOR allegations will be discussed below:

1.a. It is alleged in the SOR that Applicant failed to timely file Federal tax returns for tax years 2013, 2104, and 2015, as legally required. Applicant admitted this allegation in his RSOR. He wrote that he failed to file the 2013 Federal tax returns because, after he completed the 2013 tax return, he realized that he lacked the funds to pay his debt to the Government. He added that his financial priorities were focused on his newborn daughter and his father, who was sick from cancer and died in 2014. He had requested that his employer deduct from his salary enough money so he would not owe the Federal Government taxes, but they had failed to do so. Additionally, he wrote that he failed to file his 2014 Federal tax return because he lacked the W2sfrom his employer, and failed to file his 2015 Federal tax return because he forgot to do so. Finally, he concluded in his RSOR that he filed his federal tax returns for tax years 2013, 2014, and 2015 in September 2016, and he has set up a payment plan with the IRS to pay his Federal debts. At the hearing, Applicant testified that prior to tax year 2013, he had timely filed his Federal tax return each year as required. (Tr at 25-30.) He admitted that he knew it was mandated by law that he file Federal and State law that he must filed tax returns each year, but he reiterated the same reasons as he cited in his RSOR for why he failed to file tax returns. He stated that he, “didn’t think it would be a huge consequence for delaying [the tax return filing] for a year or two.” (Tr at 27-28.)

1.b. It is alleged in the SOR that Applicant failed to timely file State A tax returns for tax years 2013, 2104, and 2015, as legally required. Applicant admitted this allegation in his RSOR, and he wrote that the same situation that applied to his failure to file his Federal tax returns, as reviewed above, also applied to why he failed to timely file his State A tax returns for tax years 2013, 2104, and 2015.

Applicant testified that he had lived in State A from 1996 through 2009 and again from 2011 through August 2015. (Tr at 25-27.) Applicant further testified that the Federal returns have been filed for the three years in question, and he does owe approximately $760 to the Federal government for tax year 2013. He also stated that he has filed State A tax returns for tax years 2013, 2014, and 2015, and he owes about $860 for State A taxes. Applicant testified that at his attorney’s suggestion, he has taken out a loan from his current 401k, and he is planning to use the proceeds of the loan to pay off his debts to the Federal Government and State A. Finally, Applicant averred that he has timely filed his 2016 tax returns. (Tr at 28-31, 41.)

Applicant conceded that when he completed his Security Clearance Application in 2015, he became even more aware of the importance of filing his tax returns, but, “I just put it off” until he received the SOR. He finally filed the Federal and State A returns in 2016, after he received the SOR. Applicant conceded that his failure to timely file his tax returns was because of procrastination and the worst decision that he ever made, and he plans to file his returns in a timely manner in the future. (Tr at 31-34.)

Applicant submitted several documents in an attempt at mitigation, which have all been reviewed. They include: Applicant's biography (Exhibit A); four positive letters of recommendation (Exhibit B); a Personal Financial Statement (Exhibit C); an Employee Performance Review (Exhibit D); a Certificate of Counseling showing he took a financial counseling course (Exhibit E); a Statement of Intent to timely file his tax returns in the future. (Exhibit F.) Other submissions included: three IRS transcripts (Exhibits G, H, and I); a letter from State A regarding Applicant's tax status (Exhibit J); a document regarding his 401kloan (Exhibit K); proof of filing Applicant's 2016 tax returns (Exhibit K); and proof of making State A and Federal tax payments. (Exhibits M and N.)

POLICIES

When evaluating an applicant’s suitability for a security clearance, the administrative judge must consider the adjudicative guidelines (AG). In addition to brief introductory explanations for each guideline, the adjudicative guidelines list potentially disqualifying conditions and mitigating conditions, which are to be used in evaluating an applicant’s eligibility for access to classified information.

These guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, administrative judges apply the guidelines in conjunction with the factors listed in AG ¶ 2 describing the adjudicative process. The administrative judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision. According to AG ¶ 2(a), the entire process is a conscientious scrutiny of a number of variables known as the whole-person concept. The administrative judge must consider all available, reliable information about the person, past and present, favorable and unfavorable, in making a decision.

The protection of the national security is the paramount consideration. AG ¶ 2(b) requires that “[a]ny doubt concerning personnel being considered for national security eligibility will be resolved in favor of national security.” In reaching this decision, I have drawn only those conclusions that are reasonable, logical, and based on the evidence contained in the record.

Under Directive ¶ E3.1.14, the Government must present evidence to establish controverted facts alleged in the SOR. Under Directive ¶ E3.1.15, the “applicant is responsible for presenting witnesses and other evidence to rebut, explain, extenuate, or mitigate facts admitted by the applicant or proven by Department Counsel, and has the ultimate burden of persuasion as to obtaining a favorable clearance decision.”

A person who applies for access to classified information seeks to enter into a fiduciary relationship with the Government predicated upon trust and confidence. This relationship transcends normal duty hours and endures throughout off-duty hours. The Government reposes a high degree of trust and confidence in individuals to whom it grants access to classified information. Decisions include, by necessity, consideration of the possible risk the applicant may deliberately or inadvertently fail to protect or safeguard classified information. Such decisions entail a certain degree of legally permissible extrapolation as to potential, rather than actual, risk of compromise of classified information.

Section 7 of Executive order (EO) 10865 provides that adverse decisions shall be “in terms of the national interest and shall in no sense be a determination as to the loyalty of the applicant concerned.” See also EO 12968, Section 3.1(b) (listing multiple prerequisites for access to classified or sensitive information).

ANALYSIS

Guideline F, Financial Considerations

The security concern relating to the guideline for Financial Considerations is set out in AG ¶ 18:

Failure to live within one's means, satisfy debts, and meet financial obligations may indicate 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 or sensitive information. Financial distress can also be caused or exacerbated by, and thus can be a possible indicator of, other issues of personnel security concern such as excessive gambling, mental health conditions, substance misuse, or alcohol abuse or dependence. An individual who is financially overextended is at greater risk of having to engage in illegal or otherwise questionable acts to generate funds. Affluence that cannot be explained by known sources of income is also a security concern insofar as it may result from criminal activity, including espionage.

The guideline notes several conditions that could raise security concerns under AG ¶ 19.

(a) inability to satisfy debts;

(b) unwillingness to satisfy debts regardless of the ability to do so;

(d) deceptive or illegal financial practices such as embezzlement, employee theft, check fraud, expense account fraud, mortgage fraud, filing deceptive loan statements and other intentional financial breaches of trust;

(e) consistent spending beyond one's means or frivolous or irresponsible spending, which may be indicated by excessive indebtedness, significant negative cash flow, a history of late payments or of non-payment, or other negative financial indicators;

(f) failure to file or fraudulently filing annual Federal, state, or local income tax returns or failure to pay annual Federal, state, or local income tax as required;

(g) unexplained affluence, as shown by a lifestyle or standard of living, increase in net worth, or money transfers that are inconsistent with known legal sources of income; (h) borrowing money or engaging in significant financial transactions to fund gambling or pay gambling debts; and

(i) concealing gambling losses, family conflict, or other problems caused by gambling.

Applicant knowingly and willfully failed to timely file his Federal and State A tax returns for tax years 2013, 2014, and 2015. The evidence is sufficient to raise disqualifying condition AG ¶ 19 (f) in this case:

AG ¶ 20 provides conditions that could mitigate security concerns. I considered all of the mitigating conditions under AG ¶ 20 including:

(a) the behavior happened so long ago, was so infrequent, or occurred under such circumstances that it is unlikely to recur and does not cast doubt on the individual's current reliability, trustworthiness, or good judgment;

(b) the conditions that resulted in the financial problem were largely beyond the person's control (e.g., loss of employment, a business downturn, unexpected medical emergency, a death, divorce or separation, clear victimization by predatory lending practices, or identity theft), and the individual acted responsibly under the circumstances;

(c) the individual has received or is receiving financial counseling for the problem from a legitimate and credible source, such as a non-profit credit counseling service, and there are clear indications that the problem is being resolved or is under control;

(d) the individual initiated and is adhering to a good-faith effort to repay overdue creditors or otherwise resolve debts;

(e) the individual has a reasonable basis to dispute the legitimacy of the past-due debt which is the cause of the problem and provides documented proof to substantiate the basis of the dispute or provides evidence of actions to resolve the issue;

(f) the affluence resulted from a legal source of income; and

(g) the individual has made arrangements with the appropriate tax authority to file or pay the amount owed and is in compliance with those arrangements.

Because Applicant filed his overdue Federal and State A tax returns and made arrangements to pay his delinquent Federal and State A taxes, mitigating condition AG ¶ 20 (g) can be considered applicable in this case. However, I also considered that the resolution of his tax issues and delinquencies occurred, not after he completed his Security Clearance Application, but only after an SOR was issued against him, and he understood that his failure to follow the rules and laws regarding taxes would result in a denial of his receiving a security clearance. Therefore, I am not convinced that Applicant has established he will follow the legal requirements regarding taxes in the future. I find that mitigation under AG ¶ 20(g) has not been established.

WHOLE PERSON CONCEPT

Under the whole-person concept, the administrative judge must evaluate an applicant’s eligibility for a security clearance by considering the totality of the applicant’s conduct and all relevant circumstances. The administrative judge should consider the nine adjudicative process factors listed at AG ¶ 2(d):

(1) the nature, extent, and seriousness of the conduct; (2) the circumstances surrounding the conduct, to include knowledgeable participation; (3) the frequency and recency of the conduct; (4) the individual’s age and maturity at the time of the conduct; (5) the extent to which participation is voluntary; (6) the presence or absence of rehabilitation and other permanent behavioral changes; (7) the motivation for the conduct; (8) the potential for pressure, coercion, exploitation, or duress; and (9) the likelihood of continuation or recurrence.

Under AG ¶ 2(c), the ultimate determination of whether to grant eligibility for a security clearance must be an overall commonsense judgment based upon careful consideration of the guidelines and the whole-person concept.

I considered the potentially disqualifying and mitigating conditions in light of all facts and circumstances surrounding this case. I have incorporated my comments under Guideline F in my whole-person analysis.

Overall, the record evidence leaves me with questions and doubts as to Applicant’s eligibility and suitability for a security clearance. For all these reasons, I conclude Applicant has not mitigated the Financial Considerations security concerns under the whole-person concept.

FORMAL FINDINGS

Formal findings for or against Applicant on the allegations set forth in the SOR, as required by ¶ E3.1.25 of the Directive, are:

Paragraph 1, Guideline F: AGAINST APPLICANT

Subparagraph 1.a: Against Applicant Subparagraph 1.b: Against Applicant

CONCLUSION

In light of all of the circumstances presented by the record in this case, it is not clearly consistent with the national interest to grant Applicant eligibility for a security clearance. Eligibility for access to classified information is denied.

Martin H. Mogul Administrative Judge

FOOTNOTES

Adjudicative Guidelines, effective June 8, 2017. My decision would be the same if the case was considered under the previous Adjudicative Guidelines, effective September 1, 2006.