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ISCR Case 16-01848.h1 — CASE

ISCR Case 16-01848.h1granted

Case Headnote

ISCR Case No. 16-01848.h1

grantedSep 29, 2017· Hon. Francisco Mendez· hearing

Summary

This case concerns a 49-year-old federal contractor whose security clearance was initially questioned under Guideline F, Financial Considerations. The Statement of Reasons specifically cited her failure to timely file federal and state tax returns for the 2012 through 2014 tax years. This raised disqualifying conditions related to a history of not meeting financial obligations and an unwillingness to resolve them.

However, the applicant demonstrated significant mitigating factors. Following personal hardships, including the death of her brother in military service, she took proactive steps to rectify her financial issues. She filed all overdue tax returns and paid all taxes owed for the years in question. Furthermore, she has consistently filed her tax returns on time for the past two years, indicating a sustained pattern of responsible financial behavior.

The judge ultimately determined that her current financial situation is stable and under control, making it unlikely that similar issues will recur. Consequently, the applicant's security clearance was GRANTED.

Why the Applicant Prevailed

All overdue tax returns have been filed and taxes owed have been paid.
Applicant has filed her tax returns on time for the past two years.
Her financial situation is under control, and it is unlikely that similar issues will recur.

Conditions Referenced

Disqualifying

AG ¶ 19(c)raisedHistory of Not Meeting Financial Obligations
AG ¶ 19(f)raisedFailure to File or Fraudulently Filing Tax Returns

Mitigating

AG ¶ 20(a)appliedBehavior Unlikely to Recur
AG ¶ 20(b)appliedConditions Largely Beyond Control
AG ¶ 20(c)appliedReceived Financial Counseling
AG ¶ 20(d)appliedGood-faith Effort to Resolve Debts
AG ¶ 20(g)appliedArrangements with Tax Authority

Key Rule Quoted

“An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds.”

Procedural Posture

SOR issuedSep 1, 2016
Answer filed—
Hearing heldSep 14, 2017mutually agreed date
Decision dateSep 29, 2017

Cite For

Mitigation of Financial Issues Under Guideline F
Impact of Personal Circumstances on Financial Obligations
Importance of Timely Tax Filing for Security Clearance Eligibility

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: granted

The judge found that the applicant successfully mitigated security concerns related to overdue tax returns. The applicant demonstrated responsible financial behavior by filing all overdue tax returns, paying any taxes owed, and maintaining timely filings for the past two years, leading to a favorable decision for the applicant.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	failed to timely file her federal and state tax returns for tax years 2012 through 2014	For Applicant	Tax Filing Failure	Admitted	(c) a history of not meeting financial obligations	(a) behavior happened long ago / infrequent / unlikely to recur (b) conditions largely beyond the person’s control; acted responsibly (c) received/receiving counseling; problem being resolved (d) good-faith effort to repay or otherwise resolve debts (g) arrangements made with the tax authority; in compliance	Documented Debt Paid in Full Claimed Other
1.b	specific text not stated in this decision	For Applicant	Unspecified Financial	Unknown	—	—	—

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: ) ) REDACTED ) ISCR Case No. 16-01848 ) ) Applicant for Security Clearance

For Government: Alison O’Connell, Esq., Department Counsel For Applicant: Pro se

09/29/2017 ______________

STATEMENT OF CASE

______________

MENDEZ, Francisco, Administrative Judge:

Applicant presented sufficient evidence to mitigate security concerns raised by her overdue tax returns. After her brother died while serving in the U.S. military, Applicant became overwhelmed dealing with her grief and handling numerous other issues. She received counseling and started addressing her overdue tax returns three years ago. All overdue tax returns have been filed and any taxes owed have been paid. Applicant has filed her tax returns over the past two years on time. Her financial situation is under control, and it is unlikely that similar financial issues will recur. Clearance is granted.

Statement of the Case

On September 1, 2016, the Department of Defense (DoD) issued a Statement of Reasons (SOR) alleging security concerns under the financial considerations guideline. Applicant answered the SOR and requested a hearing.

On September 14, 2017, a date mutually agreed to by the parties, the hearing was held. Applicant testified and the exhibits offered by the parties were admitted into the administrative record without objection.1 The hearing transcript (Tr.) was received on September 22, 2017, and the record closed on September 27, 2017.

FINDINGS OF FACT

Applicant, 49, has been working as a cleared federal contractor for over 10 years. She submitted a security clearance application in connection with a periodic reinvestigation in 2015. She reported failing to timely file her federal and state tax returns for tax years 2012 through 2014. (Exhibit 1)

Between June 2014 and October 2016, Applicant filed her overdue tax returns. She received refunds for tax years 2012 and 2014, and paid the taxes she owed for 2013. She was counseled by her supervisor regarding her late tax filings, and has filed her tax returns for the past two years on time. She received federal and state tax refunds totaling over $6,500 for tax years 2015 and 2016. She submitted a recent bank statement, showing that her 2016 tax refunds were received well before the April 15th deadline. She credibly testified that she will continue to file her tax returns on time. (Exhibits B – G)

Applicant filed her tax returns late because she became overwhelmed trying to handle a number of personal issues that all occurred at about same time. Of note, Applicant’s tax issues began shortly after her brother died while serving overseas in the U.S. military. While trying to deal with her grief, her mother became seriously ill, and a longtime relationship ended abruptly. Further complicating Applicant’s situation was the receipt of statements from her financial institution, erroneously showing that she had taken an early withdrawal from her retirement account. Another financial institution failed to timely provide needed tax documents, and her movers lost other documents that she needed to complete her returns. Applicant filed for the necessary extensions for each of the tax years in question. But, when the time came to file the returns, she missed the deadlines. As of the close of the record, Applicant had filed all overdue tax returns and paid any taxes due.

In 2015, Applicant purchased a new home and, for the past two years, she has made the monthly mortgage payments on a consistent and timely basis. She has earned between $108,000 and $135,000 over the past five years. (Exhibits A – E, G) A recent checking account statement reflects that, after paying recurring expenses and debts, Applicant regularly carries a monthly balance of approximately $1,500. (Exhibit F) A recent credit report reflects that she is “paying as agreed” all current consumer accounts. (Exhibit 2)

Law, Policies, and Regulations

This case is decided under Executive Order (E.O.) 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) implemented on June 8, 2017, through Security Executive Agent Directive 4 (SEAD-4). See ISCR Case No. 02-00305 at 3 (App. Bd. Feb. 12, 2003) (security clearance decisions must be based on current DoD policy and standards).

“[N]o one has a ‘right’ to a security clearance.” Department of the Navy v. Egan, 484 U.S. 518, 528 (1988). Instead, persons are only eligible for access to classified information “upon a finding that it is clearly consistent with the national interest” to authorize such access. E.O. 10865 § 2.

When evaluating an applicant’s eligibility for a security clearance, an administrative judge must consider the adjudicative guidelines. In addition to brief introductory explanations, the guidelines list potentially disqualifying and mitigating conditions. The guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, an administrative judge applies the guidelines in a commonsense manner, considering all available and reliable information, in arriving at a fair and impartial decision. AG ¶ 2.

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

Administrative Judges must remain fair and impartial, and conduct all hearings in a timely and orderly manner. Judges must carefully balance the needs for the expedient resolution of a case with the demands of due process. Therefore, an administrative judge will ensure that an applicant: (a) receives fair notice of the issues, (b) has a reasonable opportunity to address those issues, and (c) is not subjected to unfair surprise. Directive, ¶ E3.1.10; ISCR Case No. 12-01266 at 3 (App. Bd. Apr. 4, 2014).

In evaluating the evidence, a judge applies a “substantial evidence” standard, which is something less than a preponderance of the evidence. Specifically, substantial evidence is defined as “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion in light of all the contrary evidence in the same record.” Directive, ¶ E3.1.32.1.2

Any doubt raised by the evidence must be resolved in favor of the national security. AG ¶ 2(b). See also SEAD-4, ¶ E.4. Additionally, the Supreme Court has held that responsible officials making “security clearance determinations should err, if they must, on the side of denials.” Egan, 484 U.S. at 531. 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. 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 an 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.

ANALYSIS

Failure or inability 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 information. An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds.3

In assessing Applicant’s case, I considered all the disqualifying and mitigating conditions listed under Guideline F, including the following:

AG ¶ 19(c): a history of not meeting financial obligations;

AG ¶ 19(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;

AG ¶ 20(a): the behavior . . . 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;

AG ¶ 20(b): the conditions that resulted in the financial problem were largely beyond the person's control . . . and the individual acted responsibly under the circumstances;

AG ¶ 20(c): the individual has received or is receiving financial counseling for the problem from a legitimate and credible source . . . and there are clear indications that the problem is being resolved or is under control;

AG ¶ 20(d): the individual initiated and is adhering to a good-faith effort to repay overdue creditors or otherwise resolve debts; and

AG ¶ 20(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. In a Guideline F case, an administrative judge examines the way an applicant handles his or her personal financial obligations to attempt to discern how they may handle their security obligations. Here, Applicant’s security clearance eligibility was called into question because she did not timely file her tax returns for three successive years. An applicant’s failure to timely file his or her income tax returns and/or pay taxes raises heightened security concerns about the person’s judgment and ability to abide by rules and regulations. This, in turn, requires a judge to closely scrutinize the circumstances giving rise to tax-related financial issues and the person’s response to it.4

A number of matters largely beyond Applicant’s control struck her at roughly the same time and contributed to her failure to timely file her tax returns. She was not trying to evade or dodge her obligation to pay taxes.

Starting about three years ago, Applicant took action to address her tax situation. She submitted all overdue tax returns, paid all outstanding taxes, and for the past two years has filed her tax returns on time. Beyond resolving her overdue tax filings, the record reflects that Applicant handles her personal finances in a responsible manner.

Additionally, Applicant demonstrated that she can continue to be trusted to self- report potentially adverse information, as evidenced by the disclosures she made on her security clearance application. Her honesty and candor continued throughout the security clearance process and at hearing.5

Applicant demonstrated that she responsibly addressed her past financial issues. Her current financial situation is under control and, going forward, she can once again be trusted to responsibly handle her financial obligations in the manner expected of all clearance holders.6 AG 20(a) – 20(d), and 20(g) apply. In short, Applicant met her burden of proof and persuasion in mitigating the security concerns at issue.

FORMAL FINDINGS

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 (Financial Considerations): FOR APPLICANT

Subparagraphs 1.a and 1.b: For Applicant

CONCLUSION

In light of the record evidence, it is clearly consistent with the interests of national security to grant Applicant continued eligibility for access to classified information. Applicant’s request for a security clearance is granted.

____________________ Francisco Mendez Administrative Judge

FOOTNOTES

1 Government Exhibits 1 and 2; Applicant’s Exhibits A – G. The discovery letter, correspondence with the parties, the notice of hearing, and case management order were marked Appellate Exhibits I – IV. 2 However, a judge’s mere disbelief of an applicant’s testimony, without actual evidence of disqualifying conduct or admission by an applicant to the disqualifying conduct, is not enough to sustain an unfavorable finding. ISCR Case No. 15-05565 (App. Bd. Aug. 2, 2017); ISCR Case No. 02-24452 (App. Bd. Aug. 4, 2004). Furthermore, an unfavorable decision cannot be based on solely non-alleged conduct. ISCR Case No. 14-05986 (App. Bd. May 26, 2017). Likewise, a judge can only use non-alleged conduct for specific limited purposes, such as, assessing mitigation and credibility, unless an applicant is placed on notice that such conduct also raises a security concern. ISCR Case No. 12-11375 (App. Bd. June 17, 2016). 3 AG ¶ 18. 4 See generally, ISCR Case No. 14-03358 at 3 (App. Bd. Oct. 9, 2015) (Board explained the heightened security concerns raised by tax-related financial issues: “A security clearance represents an obligation to the Federal Government for the protection of national secrets. Accordingly failure to honor other obligations to the Government has a direct bearing on an applicant’s . . . ability to protect classified information.”).

5 See AG ¶ 2 (whole-person factors); SEAD-4, ¶ E.4 (other relevant factors).

6 Contrast with ISCR Case No. 15-03481 (App. Bd. Sep. 27, 2016) (filing of overdue tax returns alone insufficient to mitigate heightened security concerns, because no evidence of financial reform or extenuating circumstances to explain the late filing).