ISCR Case No. 16-01639.h1

DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS

In the matter of: ) ) ) ISCR Case No. 16-01639 ) Applicant for Security Clearance )

For Government: Carroll J. Connelley, Esq., Department Counsel For Applicant: Pro se

09/28/2017 ______________

______________

LOUGHRAN, Edward W., Administrative Judge:

Applicant did not mitigate the financial considerations security concerns. Eligibility for access to classified information is denied.

Statement of the Case

On August 9, 2016, the Department of Defense (DOD) issued a Statement of Reasons (SOR) to Applicant detailing security concerns under Guideline F, financial considerations. Applicant responded to the SOR on September 19, 2016, and elected to have the case decided on the written record in lieu of a hearing. On October 26, 2016, Department Counsel requested a hearing before an administrative judge.

The case was assigned to me on August 15, 2017. The Defense Office of Hearings and Appeals (DOHA) issued a notice of hearing on August 23, 2017, scheduling the hearing for September 14, 2017. The hearing was convened as scheduled. Government Exhibits (GE) 1 through 6 were admitted in evidence without objection. Applicant testified and submitted Applicant’s Exhibits (AE) A and A(1) through A(3), which were admitted without objection. DOHA received the hearing transcript (Tr.) on September 22, 2017.

Applicant is 68 years old. He has worked for his current employer since 1989. He seeks to retain a security clearance. He has two master’s degrees and a PhD, which were awarded in 1974 and 1975. He has never married, but he lived with a cohabitant for more than 20 years. He has no children.1

Applicant’s assets include his home and an investment property. The properties are valued at about $400,000 each, and neither property is encumbered by a mortgage. He has about $1.2 million in a retirement account. However, Applicant also has a history of not filing his state and federal income tax returns on time and not paying his taxes when due.2

Applicant did not file his state and federal tax returns for 2002 through 2008 when they were due. His state garnished his wages in 2003 for unpaid state taxes. Applicant noted the garnishment on his 2005 security clearance application. He did not pay all the taxes due when he filed the back returns in 2010. The IRS filed a $37,179 tax lien against him in 2011.3

Applicant did not file his state and federal tax returns for 2010 through 2014 when they were due. He also did not pay the total amount of taxes owed. He wrote in his May 2015 Questionnaire for National Security Positions (SF 86) that he was “working to organize [his] records and expect to have this matter resolved by June 2015.” When he was interviewed for his background investigation in January 2016, he stated that he was in the process of selling his investment home and retaining a tax accountant to work with the IRS to reach a settlement. He stated that he would use the profit from the sale of the home to pay his back taxes.4

Applicant filed his past-due state and federal tax returns after he received the SOR. He wrote in his September 2016 response to the SOR that he was “working with the IRS to sell the property which the lien is upon which in order to settle all federal and state tax debts.” Applicant did not pay his state and federal taxes until days before the hearing.5 His payments are addressed in the below table: TAX YEAR FEDERAL OR STATE AMOUNT DATE PAID

2005 Federal $646 September 11, 2017

2006 Federal $22,668 September 11, 2017

2007 Federal $4,165 September 11, 2017

2012 Federal $11,848 September 11, 2017

2012 State $2,336 September 1, 2017

2013 Federal $4,795 September 12, 2017

2013 State $1,040 September 1, 2017 2015 Federal $5,499 September 12, 2017

September 1, 20176 2015 State $3,675

Applicant sold his primary residence in 2011 for $410,000, realizing a profit after accounting for the original purchase price of $238,000 and $26,000 in sales expenses. Since his profit was less than $250,000, he did not owe taxes on the profit. Because he had not filed an income tax return, the IRS did not know the cost basis of the original purchase price. In 2015, the IRS assessed $161,862 in additional taxes for tax year 2011.7

Applicant filed his tax returns himself. He thought he did not have to report the 2011 sale because the profit was less than $250,000. Applicant provided information about the sale at the IRS’s request. The IRS reduced or removed additional assessments of $232,478 in June 2017. The IRS is apparently satisfied that he paid his taxes for tax year 2011. The state is waiting for confirmation from the IRS.8

This case is adjudicated under Executive Order (EO) 10865, Safeguarding Classified Information within Industry (February 20, 1960), as amended; DOD Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program (January 2, 1992), as amended (Directive); and the adjudicative guidelines (AG), which became effective on June 8, 2017. When evaluating an applicant’s suitability for a security clearance, the administrative judge must consider the adjudicative guidelines. 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 the adjudicative process. The administrative judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision. According to AG ¶ 2(c), 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 the national security.”

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.” The applicant has the ultimate burden of persuasion to obtain a favorable security decision.

A person who seeks access to classified information enters 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 safeguard classified information. Such decisions entail a certain degree of legally permissible extrapolation of potential, rather than actual, risk of compromise of classified information.

Section 7 of 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).

Guideline F, Financial Considerations

The security concern 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.

The guideline notes several conditions that could raise security concerns under AG ¶ 19. The following are potentially applicable in this case:

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

(c) a history of not meeting financial obligations; and

(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.

Applicant did not file his tax returns when they were due, and he did not pay his taxes in spite of his ability to do so. The evidence established the above disqualifying conditions.

I am satisfied that Applicant does not owe the large amount alleged for tax year 2011. SOR ¶ 1.d is concluded for Applicant.

Conditions that could mitigate the financial considerations security concerns are provided under AG ¶ 20. The following are potentially applicable:

(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;

(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; 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.

Applicant’s tax issues go back at least 15 years. His wages were garnished by his state in 2003. He did not file his state and federal tax returns for 2002 through 2008 when they were due. He did not pay all the taxes due when he filed the back returns in 2010, resulting in a $37,179 federal tax lien filed against him in 2011. He returned to his old habits and did not file his tax returns for 2010 through 2014 until after he received the SOR. He did not pay his state and federal taxes, including federal taxes for tax years 2005 through 2007, until days before the hearing. The Appeal Board has held that “it is proper for a Judge to consider that an applicant, aware of his debts, has undertaken to address them only after having been advised that his clearance is in jeopardy.” See ISCR Case No. 11-13949 at 3 (App. Bd. Sep. 5, 2013).

Applicant’s repeated failure to fulfil his tax obligations suggests that he does not possess the high degree of good judgment and reliability required of persons granted access to classified information and that he has a problem with complying with well- established governmental rules and systems. Voluntary compliance with such rules and systems is essential for protecting classified information. See ISCR Case No. 14-04437 at 3 (App. Bd. Apr. 15, 2016). This is true even though the returns have been filed. See ISCR Case No. 15-03481 at 5 (App. Bd. Sep. 27, 2016).

Applicant’s tax issues are recent. They continue to cast doubt on his current reliability, trustworthiness, and good judgment. I have no confidence that he will comply with the tax laws in the future. AG ¶ 20(a) is not applicable. AG ¶¶ 20(c) and 20(d) are partially applicable, and AG ¶ 20(g) is applicable, but they do not completely mitigate the judgment issues raised by Applicant’s many years of shirking his responsibility to file his tax returns and pay his taxes. I find that financial considerations concerns remain despite the presence of some mitigation.

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 the facts and circumstances surrounding this case. I have incorporated my comments under Guideline F in my whole-person analysis. Applicant’s tax issues are resolved. However, he was a tax scofflaw for many years. He did not file his tax returns until after he received the SOR, and he did not pay his taxes until days before the hearing. I have no confidence that future tax returns and taxes will be filed and paid on time.

Overall, the record evidence leaves me with questions and doubts about Applicant’s eligibility and suitability for a security clearance. I conclude Applicant did not mitigate the financial considerations security concerns.

Formal findings for or against Applicant on the allegations set forth in the SOR, as required by section E3.1.25 of Enclosure 3 of the Directive, are:

Paragraph 1, Guideline F: Against Applicant

Subparagraphs 1.a-1.c: Against Applicant Subparagraph 1.d: For Applicant

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

________________________ Edward W. Loughran Administrative Judge

1 Tr. at 31; GE 1, 2; AE.A 2 Tr. at 23-24; GE 3; AE A. 3 Tr. at 23, 27; Applicant’s response to SOR; GE 2-5; AE A. The SOR did not allege the state garnishment or Applicant’s failure to file tax returns from 2012 to 2008. Any matter that was not alleged in the SOR will not be used for disqualification purposes. It may be considered when assessing Applicant’s overall financial situation, in the application of mitigating conditions, and during the whole-person analysis. 4 Tr. at 21-25; GE 1, 3; AE A. 5 Tr. at 18, 28; Applicant’s response to SOR; AE A, A(3). 6 AE A(3). 7 Tr. at 18-21; Applicant’s response to SOR; GE 6; AE A, A(2), A(3). 8 Tr. at 18-21, 25; GE 6; AE A, A(2), A(3).