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ISCR Case 16-02316.h1 — CASE

ISCR Case 16-02316.h1denied

Case Headnote

ISCR Case No. 16-02316.h1

deniedJul 1, 2016· Hon. Edward W. Loughran· hearing

Summary

A 56-year-old defense contractor and military veteran was denied a security clearance under Guideline F, Financial Considerations. The Statement of Reasons alleged that the applicant failed to file state and federal income tax returns from 2008 through 2014. Additionally, the applicant had a $164 debt to an apartment complex and two delinquent medical debts totaling $344. These issues raised concerns under Disqualifying Condition F.19(g).

While the applicant eventually filed the outstanding tax returns and made payments on the debts after receiving the Statement of Reasons, the judge found these actions insufficient. Mitigating Conditions F.20(c) and F.20(d) were considered but did not overcome the concerns.

The denial was based on the applicant's history of failing to file tax returns for multiple years, which indicated poor judgment and reliability. The financial issues were recent and ongoing, and the applicant's compliance with tax obligations only occurred after the Statement of Reasons was issued, suggesting a lack of proactive responsibility.

Why the Applicant Was Denied

The applicant failed to file state and federal income tax returns for multiple years, indicating poor judgment and reliability.
The applicant's financial issues were recent and ongoing, casting doubt on his current trustworthiness.
The applicant only complied with tax obligations after receiving the SOR, suggesting a lack of proactive responsibility.

Conditions Referenced

Disqualifying

F.19(g)raisedFailure to File Annual Federal, State, or Local Income Tax Returns as Required

Mitigating

F.20(c)appliedThe Person Has Received or Is Receiving Counseling for the Problem And/or There Are Clear Indications That the Problem Is Being Resolved or Is Under Control
F.20(d)appliedThe Individual Initiated a Good-faith Effort to Repay Overdue Creditors or Otherwise Resolve Debts

Key Rule Quoted

“Voluntary compliance with such rules and systems is essential for protecting classified information.”
— ISCR Case No. 14-04437 at 3 (App. Bd. Apr. 15, 2016)

Procedural Posture

SOR issuedSep 20, 2016
Answer filedOct 10, 2016
Hearing heldApr 4, 2017
Decision dateMay 23, 2017

Cite For

Failure to File Tax Returns as a Disqualifying Condition Under Guideline F
Insufficient Mitigation of Financial Issues Despite Some Compliance Efforts
The Importance of Proactive Compliance with Tax Obligations in Security Clearance Evaluations

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 that the applicant did not mitigate the financial considerations security concerns, primarily due to his failure to file tax returns for several years. While some debts were resolved, the applicant's ongoing financial issues raised doubts about his reliability and judgment, leading to a denial of his security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	Applicant did not file his state and federal income tax returns when they were due for tax years 2008 through 2014. $17,200	Against Applicant	Tax Filing Failure	Admitted	(g) unexplained affluence	—	—
1.b	Applicant did not file his state and federal income tax returns when they were due for tax years 2008 through 2014. $17,200	Against Applicant	Tax Filing Failure	Admitted	(g) unexplained affluence	—	—
1.c	$164 debt to an apartment complex. $164	For Applicant	Unspecified Financial	Admitted	—	—	Claimed Debt Paid in Full
1.d	Two delinquent medical debts totaling $344. $344	For Applicant	Medical Debt	Admitted	—	—	Claimed Debt Paid in Full
1.e	Two delinquent medical debts totaling $344. $344	For Applicant	Medical Debt	Admitted	—	—	Claimed Debt Paid in Full

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. 16-02316 ) Applicant for Security Clearance )

For Government: Bryan J. Olmos, Esq., Department Counsel For Applicant: Pro se

05/23/2017 ______________

STATEMENT OF CASE

______________

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 September 20, 2016, the Department of Defense (DOD) issued a Statement of Reasons (SOR) to Applicant detailing security concerns under Guideline F, financial considerations. The action was taken 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) implemented by the DOD on September 1, 2006.

Applicant received the SOR on September 23, 2016. He responded to the SOR on October 10, 2016, and requested a hearing before an administrative judge. The case was assigned to me on January 18, 2017. The Defense Office of Hearings and Appeals (DOHA) issued a notice of hearing on February 27, 2017, scheduling the hearing for April 4, 2017. The hearing was convened as scheduled. Government Exhibits (GE) 1 through 5 were admitted in evidence without objection. Applicant testified and submitted Applicant’s Exhibits (AE) A through N, which were admitted without objection. DOHA received the hearing transcript (Tr.) on April 13, 2017.

FINDINGS OF FACT

Applicant is a 56-year-old employee of a defense contractor. He has worked for his current employer since 2001. He served on active duty in the U.S. military from 1978 until he retired with an honorable discharge in 1998. He seeks to retain a security clearance, which he has held since he served in the military. He has a bachelor’s degree, which was awarded in 1991, and a master’s degree, which was awarded in 2001. He married in 1983, divorced in 1988, married again in 1992, and divorced in 2011. He has an adult child.1

Applicant did not file his state and federal income tax returns when they were due for tax years 2008 through 2014. His second wife was a certified public accountant (CPA) and handled the family’s tax returns. After they separated and divorced, he felt overwhelmed and “froze.” He was in contact with the IRS, he received notices from the IRS, and his wages were garnished, but he could not bring himself to file the returns.2

Applicant submitted a Questionnaire for National Security Positions (SF 86) in November 2015. He noted that he had not filed his state and federal income tax returns when they were due for tax years 2008 through 2014. He estimated the total amount owed in taxes for those years to be $17,200. He stated that he had increased the amount withheld from his pay for taxes, and he was working with the IRS on filing his returns and a payment plan. He also disclosed that he went on multiple tourist trips to foreign countries from 2012 to 2015.3

Applicant was interviewed for his background investigation in February 2016. He discussed the unfiled tax returns and unpaid taxes. He stated that he intended to contact the IRS and obtain copies of his W-2 forms. He would then retain a CPA to file his returns. He stated that he intended to pay his taxes in full.4

Applicant filed his state and federal income tax returns for 2008 through 2015 on October 10, 2016, after he received the SOR. His state returns indicated that he would have been due a refund for 2008 through 2010, and that he owed $3,173 for 2011 through 2015. The federal returns indicated that he would have been due a refund for 2010, and that he owed $7,664 for 2012 through 2015. Those state and federal figures do not include penalties and interest. Applicant sent checks totaling the above amounts to the state and IRS with his returns.5

Additional amounts were due for each year because of penalties and interest. Applicant paid an additional $6,665 to the IRS and $1,026 to the state for tax years 2010 through 2015. He filed his 2016 state and federal tax returns on time, and he paid $1,241 to the IRS and $686 to the state for his 2016 taxes. Applicant believes that all the taxes, penalties, and interest have been paid, except for tax year 2011. He paid an additional $1,610 for that tax year, but the IRS has not yet calculated the final tax liability for that year.6

Applicant is in therapy to assist him with dealing with certain events, including his taxes. He retained a CPA to file his tax returns going forward. He accepted responsibility for his failure to act. He stated that he has learned a valuable lesson, and he will be compliant with all tax laws in the future.7

The SOR alleges a $164 debt to an apartment complex and two delinquent medical debts totaling $344 (SOR ¶¶ 1.c, 1.d, 1.e). Applicant paid the debts after receipt of the SOR.8

Applicant served in combat during Operation Desert Storm. He submitted numerous documents and letters attesting to his excellent job performance.9

POLICIES

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 access to classified information will be resolved in favor of 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).

ANALYSIS

Guideline F, Financial Considerations

The security concern for financial considerations is set out in AG ¶ 18:

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

(g) failure to file annual Federal, state, or local income tax returns as required or the fraudulent filing of the same.

Applicant did not file his state and federal income tax returns when they were due for tax years 2008 through 2014. AG ¶ 19(g) is applicable.

Applicant paid the three small debts alleged in SOR ¶¶ 1.c, 1.d, and 1.e. Those allegations are mitigated and concluded for Applicant.

Conditions that could mitigate financial considerations 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 person has received or is receiving counseling for the problem and/or there are clear indications that the problem is being resolved or is under control; and

(d) the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.

Applicant filed all his returns after his pay was garnished, his SF 86 was submitted, he was interviewed for his background investigation, and he received the SOR. He paid most, if not all, of the past-due state and federal taxes. He is in therapy, and he retained a CPA to file his tax returns going forward. He stated that he has learned a valuable lesson, and he will be compliant with all tax laws in the future. Nonetheless, Applicant’s repeated failure to file his income tax returns in a timely manner 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 financial issues are recent and ongoing. They continue to cast doubt on his current reliability, trustworthiness, and good judgment. AG ¶ 20(a) is not applicable. AG ¶ 20(d) is partially applicable. AG ¶ 20(c) is applicable, but it is insufficient to mitigate Applicant’s years of poor judgment. I find that financial considerations concerns remain despite the presence of some mitigation.

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(a):

(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. I considered Applicant’s favorable character evidence and his honorable military service, particularly his combat service. However, he shirked his tax responsibilities for years, and only came into compliance after he received the SOR.

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

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.b: Against Applicant Subparagraphs 1.c-1.e: For 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 continue Applicant’s eligibility for a security clearance. Eligibility for access to classified information is denied.

________________________ Edward W. Loughran Administrative Judge

FOOTNOTES

1 Tr. at 23, 28; Applicant’s response to SOR; GE 1, 3; AE D, M. 2 Tr. at 22-26, 32-34; Applicant’s response to SOR; GE 1, 3; AE D. 3 GE 1. 4 GE 3. 5 Tr. at 24-25, 33, 37-38; Applicant’s response to SOR; AE D, F. 6 Tr. at 25, 36-39; AE E-G. 7 Tr. at 22-27; Applicant’s response to SOR; GE 1, 3; AE D, G, K. 8 Applicant’s response to SOR; AE A, D, H, I. 9 Tr. at 28; Applicant’s response to SOR; GE 1, 3; AE B-D, J, L, M.