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ISCR Case 15-06367.h1 — CASE

ISCR Case 15-06367.h1granted

Case Headnote

ISCR Case No. 15-06367.h1

grantedJul 7, 2017· Hon. Mark W. Harvey· hearing

Summary

A 54-year-old software engineer, holding a security clearance since 2010, faced a DOHA security-clearance review under Guideline F (Financial Considerations). The Statement of Reasons alleged that the applicant failed to timely file federal tax returns for tax years 2012, 2013, and 2014. This raised a disqualifying condition under Adjudicative Guideline (AG) ¶ 19(f).

However, the judge found that mitigating conditions under AG ¶ 20(g) applied. The applicant received refunds for all three tax years, indicating no outstanding financial liability to the government. He also made and complied with arrangements with the IRS, demonstrating a commitment to resolving the issue.

Ultimately, the judge determined that the applicant's failure to file on time was due to negligence rather than willful disregard of his tax obligations. Based on these mitigating factors, the financial concerns were resolved, and the applicant's security clearance was GRANTED.

Why the Applicant Prevailed

The applicant received refunds for all tax years in question, indicating no financial liability.
He made arrangements with the IRS and complied with those arrangements, demonstrating responsibility.
The judge found that the applicant's errors were due to negligence rather than willful disregard.

Conditions Referenced

Disqualifying

AG ¶ 19(f)raisedFailure to File Annual Federal Income Tax Returns as Required

Mitigating

AG ¶ 20(g)appliedThe Individual Has Made Arrangements with the Appropriate Tax Authority to File or Pay the Amount Owed and Is in Compliance with Those Arrangements

Key Rule Quoted

“Eligibility for a security clearance is predicated upon the applicant meeting the criteria contained in the adjudicative guidelines.”

Procedural Posture

SOR issuedMay 6, 2016
Answer filedJul 1, 2016Applicant requested a decision without a hearing.
Hearing held—
Decision dateJul 7, 2017

Cite For

Mitigation of Financial Concerns Under Guideline F
Consideration of Tax Refunds in Security Clearance Decisions
Evaluation of Negligence Versus Willful Misconduct in Tax Filing Issues

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 failed to timely file his federal income tax returns for the years 2012 and 2013, which raised financial considerations security concerns. However, the applicant's compliance with tax authority arrangements and the absence of tax debt led the judge to conclude that the financial concerns were mitigated, resulting in a decision to grant the security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	failed to timely file his federal tax returns for tax years 2012, 2013, and 2014	For Applicant	Tax Filing Failure	Denied	(f) failure to file / fraudulent filing of tax returns or unpaid tax	(g) arrangements made with the tax authority; in compliance	Claimed Other

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. 15-06367 ) ) Applicant for Security Clearance

For Government: Robert J. Kilmartin, Esq., Department Counsel For Applicant: Pro se

07/07/2017 ___________

STATEMENT OF CASE

___________

HARVEY, Mark, Administrative Judge:

Applicant’s statement of reasons (SOR) alleges that he failed to timely file his federal tax returns for tax years 2012, 2013, and 2014. He received an extension for tax years 2012, 2013, and 2014, and his 2014 tax return was timely filed within the extension period. His 2013 federal tax return was about two months late, and his 2012 tax return was filed almost three years late. He received a refund for tax years 2012, 2013, and 2014. Financial considerations security concerns are mitigated. Eligibility for access to classified information is granted.

Statement of the Case

On August 18, 2014, Applicant completed and signed a Questionnaire for National Security Positions (SF 86) or security clearance application (SCA). (Item 2) On May 6, 2016, the Department of Defense (DOD) Consolidated Adjudications Facility (CAF) issued an SOR to Applicant under Executive Order (Exec. Or.) 10865, Safeguarding Classified Information within Industry, February 20, 1960; DOD Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program (Directive), January 2, 1992; and the Adjudicative Guidelines for Determining Eligibility for Access to Classified Information, which became effective on September 1, 2006 (Sept. 1, 2006 AGs).

The SOR detailed reasons why the DOD CAF did not find under the Directive that it is clearly consistent with the interests of national security to grant or continue a security clearance for him, and recommended referral to an administrative judge to determine whether a clearance should be granted, continued, denied, or revoked. (Item 1) Specifically, the SOR set forth security concerns arising under the financial considerations guideline.

On July 1, 2016, Applicant provided a response to the SOR, and he requested a decision without a hearing. (Item 1) On August 5, 2016, Department Counsel completed the File of Relevant Material (FORM). On August 15, 2016, Applicant received the FORM. On September 12, 2016, Applicant responded to the FORM. On May 22, 2017, the case was assigned to me. The case file consists of four exhibits. (Items 1-3; FORM response) Applicant did not object to any of the government exhibits.

While this case was pending a decision, the Director of National Intelligence issued Security Executive Agent Directive 4, establishing National Security Adjudicative Guidelines for Determining Eligibility for Access to Classified Information or Eligibility to Hold a Sensitive Position (AGs) which he made applicable to all covered individuals who require initial or continued eligibility for access to classified information or eligibility to hold a sensitive position. The new AGs supersede the Sept. 1, 2006 AGs and are effective “for all covered individuals” on or after June 8, 2017. Accordingly, I have evaluated Applicant’s security clearance eligibility under the new AGs.1

Findings of Fact2

In Applicant’s SOR response, he denied the allegation in SOR ¶ 1.a. (Item 1) He also made some partial admissions, and he provided extenuating and mitigating information. (Item 1) Applicant’s admissions are accepted as findings of fact. Additional findings of fact follow.

Applicant is a 54-year-old software engineer who has been employed by a defense contractor since 2008.3 He has not served in the military. In 1986, he married, and his two children were born in 1998 and 2000. He has held a security clearance since 2010, and there is no evidence of security violations. There is no evidence of alcohol abuse or use of illegal drugs.

Financial Considerations

The SOR alleged Applicant did not timely file his federal income tax returns for tax years 2012, 2013, and 2014. For each tax year, he filed for the automatic six-month extension, which ends in mid-October of the year following the tax year. (Item 1; FORM response) In 2012, he was working on his tax return on-line, and he forgot to transmit the completed return to the IRS. (FORM response) Later, when he went to access his 2012 on-line tax return, it was not available. (FORM response) He failed to retain his back-up information such as his W-2. (FORM response) He acknowledged that he did not follow- up on filing his 2012 tax return. (FORM response) He believed the IRS would contact him about his 2012 tax return; however, he did not hear from the IRS. The correspondence from the Internal Revenue Service (IRS) indicates:

Tax Year Date Tax Return Refund (+) Exhibit Received at IRS Owed (-) 2012 About Sept. 20164 +$2,813 FORM response 2013 Dec. 8, 2014 +$1,117 Item 1 2014 Sept. 7, 2015 +$2,717 Item 1

Applicant was aware that he was going to receive a refund for tax years 2013 and 2014. He planned to file his tax returns in time to receive his refunds. Tax returns filed more than three years late are not eligible for refunds.

POLICIES

The U.S. Supreme Court has recognized the substantial discretion of the Executive Branch in regulating access to information pertaining to national security emphasizing, “no one has a ‘right’ to a security clearance.” Department of the Navy v. Egan, 484 U.S. 518, 528 (1988). As Commander in Chief, the President has the authority to control access to information bearing on national security and to determine whether an individual is sufficiently trustworthy to have access to such information.” Id. at 527. The President has authorized the Secretary of Defense or his designee to grant applicant’s eligibility for access to classified information “only upon a finding that it is clearly consistent with the national interest to do so.” Exec. Or. 10865, Safeguarding Classified Information within Industry § 2 (Feb. 20, 1960), as amended.

Eligibility for a security clearance is predicated upon the applicant meeting the criteria contained in the adjudicative guidelines. These guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, these guidelines are applied in conjunction with an evaluation of the whole person. An administrative judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision. An administrative judge must consider all available, reliable information about the person, past and present, favorable and unfavorable.

The Government reposes a high degree of trust and confidence in persons with access to classified information. This relationship transcends normal duty hours and endures throughout off-duty hours. 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 about potential, rather than actual, risk of compromise of classified information. Clearance decisions must be “in terms of the national interest and shall in no sense be a determination as to the loyalty of the applicant concerned.” See Exec. Or. 10865 § 7. Thus, nothing in this decision should be construed to suggest that it is based, in whole or in part, on any express or implied determination about applicant’s allegiance, loyalty, or patriotism. It is merely an indication the applicant has not met the strict guidelines the President and the Secretary of Defense have established for issuing a clearance.

Initially, the Government must establish, by substantial evidence, conditions in the personal or professional history of the applicant that may disqualify the applicant from being eligible for access to classified information. The Government has the burden of establishing controverted facts alleged in the SOR. See Egan, 484 U.S. at 531. “Substantial evidence” is “more than a scintilla but less than a preponderance.” See v. Washington Metro. Area Transit Auth., 36 F.3d 375, 380 (4th Cir. 1994). The guidelines presume a nexus or rational connection between proven conduct under any of the criteria listed therein and an applicant’s security suitability. See ISCR Case No. 95-0611 at 2 (App. Bd. May 2, 1996).

Once the Government establishes a disqualifying condition by substantial evidence, the burden shifts to the applicant to rebut, explain, extenuate, or mitigate the facts. Directive ¶ E3.1.15. An applicant “has the ultimate burden of demonstrating that it is clearly consistent with the national interest to grant or continue his security clearance.” ISCR Case No. 01-20700 at 3 (App. Bd. Dec. 19, 2002). The burden of disproving a mitigating condition never shifts to the Government. See ISCR Case No. 02-31154 at 5 (App. Bd. Sep. 22, 2005). “[S]ecurity clearance determinations should err, if they must, on the side of denials.” Egan, 484 U.S. at 531; see AG ¶ 2(b).

ANALYSIS

Financial Considerations

AG ¶ 18 articulates the security concern for financial problems:

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 Appeal Board explained the scope and rationale for the financial considerations security concern in ISCR Case No. 11-05365 at 3 (App. Bd. May 1, 2012) (citation omitted) as follows: This concern is broader than the possibility that an applicant might knowingly compromise classified information in order to raise money in satisfaction of his or her debts. Rather, it requires a Judge to examine the totality of an applicant’s financial history and circumstances. The Judge must consider pertinent evidence regarding the applicant’s self-control, judgment, and other qualities essential to protecting the national secrets as well as the vulnerabilities inherent in the circumstances. The Directive presumes a nexus between proven conduct under any of the Guidelines and an applicant’s security eligibility.

AG ¶ 19 includes one disqualifying conditions that could raise a security concern and may be disqualifying in this case: “(f) failure to file . . . annual Federal . . . income tax returns . . . as required.” The record establishes the disqualifying condition in AG ¶ 19(f) requiring additional inquiry about the possible applicability of mitigating conditions.

Applicant did not timely file his federal income tax returns for tax years 2012 and 2013. A willful failure to timely make (means complete and file with the IRS) a federal income tax return is a misdemeanor-level federal criminal offense.5 For purposes of this decision, I am not weighing Applicant’s failure to timely file his federal income tax returns against him as a federal crime. He did not receive notice of a Guideline J or E security concern in the SOR.

One financial considerations mitigating condition under AG ¶ 20 is applicable: “(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 negligently failed to timely file his federal income tax return for tax years 2012 and 2013. He was due refunds for those two tax years. The DOHA Appeal Board has commented:

Failure to file tax returns suggests that an applicant 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. ISCR Case No. 01-05340 at 3 (App. Bd. Dec. 20, 2002). As we have noted in the past, a clearance adjudication is not directed at collecting debts. See, e.g., ISCR Case No. 07-08049 at 5 (App. Bd. Jul. 22, 2008). By

United States, 51 F.2d 193 (7th Cir. 1931). the same token, neither is it directed toward inducing an applicant to file tax returns. Rather, it is a proceeding aimed at evaluating an applicant’s judgment and reliability. Id. A person who fails repeatedly to fulfill his or her legal obligations does not demonstrate the high degree of good judgment and reliability required of those granted access to classified information. See, e.g., ISCR Case No. 14-01894 at 5 (App. Bd. Aug. 18, 2015). See Cafeteria & Restaurant Workers Union Local 473 v. McElroy, 284 F.2d 173, 183 (D.C. Cir. 1960), aff’d, 367 U.S. 886 (1961).

ISCR Case No. 14-04437 at 3 (App. Bd. Apr. 15, 2016) (emphasis in original). See ISCR Case No. 14-05476 at 5 (App. Bd. Mar. 25, 2016) (citing ISCR Case No. 01-05340 at 3 (App. Bd. Dec. 20, 2002)); ISCR Case No. 14-01894 at 4-5 (App. Bd. Aug. 18, 2015). The Appeal Board clarified that even in instances where an “[a]pplicant has purportedly corrected [the applicant’s] federal tax problem, and the fact that [applicant] is now motivated to prevent such problems in the future, does not preclude careful consideration of [a]pplicant’s security worthiness in light of [applicant’s] longstanding prior behavior evidencing irresponsibility” including a failure to timely file federal income tax returns. See ISCR Case No. 15-01031 at 3 and note 3 (App. Bd. June 15, 2016) (characterizing “no harm, no foul” approach to an Applicant’s course of conduct and employed an “all’s well that ends well” analysis as inadequate to support approval of access to classified information with focus on timing of filing of tax returns after receipt of the SOR).

In ISCR Case No. 15-01031 at 2 (App. Bd. June 15, 2016), the Appeal Board reversed the grant of a security clearance, and noted the following primary relevant disqualifying facts:

Applicant filed his 2011 Federal income tax return in December 2013 and received a $2,074 tax refund. He filed his 2012 Federal tax return in September 2014 and his 2013 Federal tax return in October 2015. He received Federal tax refunds of $3,664 for 2012 and $1,013 for 2013.

Notwithstanding the lack of any tax debt owed when the tax returns were filed in ISCR Case No. 15-01031 (App. Bd. June 15, 2016), the Appeal Board provided the following principal rationale for reversing the grant of a security clearance, “By failing to file his 2011, 2012, and 2013 Federal income tax returns in a timely manner, Applicant did not demonstrate the high degree of good judgment and reliability required of persons granted access to classified information.” ISCR Case No. 15-01031 at 4 (App. Bd. June 15, 2016) (citations omitted).

On June 8, 2017, the new AGs went into effect. In 2016, Applicant “made arrangements with the appropriate tax authority to file [his 2012 federal income tax return] . . . and is in compliance with those arrangements.” AG ¶ 20(f). There is sufficient assurance that his financial problems are resolved, are under control, and will not recur in the future. Under all the circumstances, financial considerations security concerns are mitigated.

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 the 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), “[t]he ultimate determination” of whether to grant a security clearance “must be an overall commonsense judgment based upon careful consideration” of the guidelines and the whole-person concept. My comments under Guideline F are incorporated in my whole-person analysis. Some of the factors in AG ¶ 2(d) were addressed under that guideline but some warrant additional comment.

Applicant is a 54-year-old software engineer who has been employed by a defense contractor since 2008. He has held a security clearance since 2010, and there is no evidence of security violations. There is no evidence of alcohol abuse or use of illegal drugs.

Applicant was two months late in the filing of his 2013 federal income tax return, and he did not file his 2012 federal income tax return until around September 2016. I agree with Applicant’s admission of negligence; however, it is important to note that he was entitled to refunds for both of those tax years. Applicant’s error in judgment is less serious because it was not motivated by a desire to withhold funds due to the IRS. I am confident that Applicant will endeavor to timely file and pay his taxes in the future.

I have carefully applied the law, as set forth in Egan, Exec. Or. 10865, the Directive, and the AGs, to the facts and circumstances in the context of the whole person. I conclude that financial consideration security concerns are mitigated. It is clearly consistent with the interests of national security to grant Applicant security clearance eligibility.

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: FOR APPLICANT

Subparagraph 1.a: For Applicant

CONCLUSION

In light of all of the circumstances in this case, it is clearly consistent with the interests of national security to grant Applicant’s eligibility for a security clearance. Eligibility for access to classified information is granted.

_________________________ MARK HARVEY Administrative Judge

FOOTNOTES

1 The new AGs are available at http://ogc.osd.mil/doha/5220-6 R20170608.pdf.

2 Some details were excluded to protect Applicant’s right to privacy. Specific information is available in the cited exhibits.

3 Unless stated otherwise, the source of the information in this paragraph is Applicant’s August 18, 2014 Questionnaire for National Security Positions (SF 86). (Item 2) 4 On September 5, 2016, the IRS wrote Applicant that the IRS was in receipt of his 2012 federal income tax return and would send a refund check in five or six weeks. (FORM response) 5 Title 26 U.S.C, § 7203, willful failure to file return, supply information, or pay tax, reads:

Any person . . . required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to . . . make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor . . . .

A willful failure to make return, keep records, or supply information when required, is a misdemeanor without regard to existence of any tax liability. Spies v. United States, 317 U.S. 492 (1943); United States v. Walker, 479 F.2d 407 (9th Cir. 1973); United States v. McCabe, 416 F.2d 957 (7th Cir. 1969); O’Brien v.