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Summary

The applicant, a 61-year-old business owner with a long history of government contracting, faced security concerns under Guideline F due to financial difficulties stemming from a significant business investment and a partner's bankruptcy. Despite these challenges, the applicant demonstrated a commitment to resolving his debts and maintaining his business, ultimately leading to a favorable decision granting his security clearance.

Under Guideline F (Financial Considerations), the Statement of Reasons alleged the following: The debt in SOR ¶ 1.a ($172,000) is a state tax lien for the sale of real estate in 2004 and 2006. Applicant credibly stated that he was unaware that capital gains taxes applied to the sale of real estate. The amounts include penalties and interest. He hired an attorney in the state where the real estate is located, to arrange a payment schedule, and the attorney failed to act timely. He hired new attorneys who are aggressively addressing the issue and have advised him that they believe he should not have to pay capital gains because the proceeds were used to purchase new property. If it is not a taxable event, Applicant may be due a refund. Applicant has already paid $89,000 on the tax lien in SOR ¶ 1.a (1.a). The debt in SOR ¶ 1.b ($274,000) is a state tax lien for the sale of real estate in 2004 and 2006. Applicant credibly stated that he was unaware that capital gains taxes applied to the sale of real estate. The amounts include penalties and interest. He hired an attorney in the state where the real estate is located, to arrange a payment schedule, and the attorney failed to act timely. He hired new attorneys who are aggressively addressing the issue and have advised him that they believe he should not have to pay capital gains because the proceeds were used to purchase new property. If it is not a taxable event, Applicant may be due a refund. Applicant has already paid $89,000 on the tax lien in SOR ¶ 1.a (1.b). Applicant disputes the debt in SOR ¶ 1.c ($18,493). Applicant was a silent partner in a company where he invested $50,000. The president of the company applied for a line of credit, and later the company was dissolved. It has been 14 years since its dissolution. Applicant does not believe he is liable as he did not have any part in running the company and was merely an investor. He has no idea where the president of the company is located. Applicant lost his investment (1.c). The debt in SOR ¶ 1.e ($420,000) is a mortgage for real estate property that was in foreclosure. Applicant has been attempting since 2009 to resolve the debt and requested reinstatement after submitting payments to the mortgage company. The checks were returned. Applicant’s reinstatement request was denied and the property has been submitted for a short sale. The property was purchased in 1999. Applicant’s real estate broker testified he has received three offers on the property. The process to complete a short sale is lengthy and time consuming. The real estate broker estimated it could take six to nine months to complete the process. Applicant’s real estate broker continues to pursue the short sale of the property to resolve the debt. Documents were provided to show Applicant’s continuing efforts since April 2009 to resolve this debt (1.e). The debt in SOR ¶ 1.f ($472,000) is a mortgage on property that was in foreclosure. Applicant attempted to get the property reinstated but the creditor refused. The property was purchased in 2001. Applicant’s real estate broker has received an offer for this property and he has counter-offered. Applicant and his real estate broker anticipate that once they agree on a price, the property will also be submitted for a short sale. Applicant’s real estate broker continues to pursue the short sale of the property to resolve the debt. Documents were provided to show Applicant’s continuing efforts since April 2009 to resolve this debt (1.f). The debt in SOR ¶ 1.g ($211,000) is for a mortgage. Applicant secured a modification of the loan. The defaulted amount has been resolved through the modification, and it is in a current status. Documentation was provided of the agreement (1.g). The debt in SOR ¶ 1.h ($2,023,855) is a federal tax lien for the unpaid payroll taxes as discussed above. The tax amount is from tax years 2006 to 2009. Applicant worked with an Internal Revenue Service (IRS) agent and secured an agreement to pay $50,000 a month to resolve the tax liability. After the agreement was made, a new agent filed the tax lien. Applicant had previously been advised that a lien would not be filed because he already had an agreement. The former agent could not release the lien once it was filed. Applicant had been making monthly payments of $50,000 beginning in September 2010. In September 2011, he increased the payments to $80,000. He is resolving the debt (1.h). The debt in SOR ¶ 1.i ($563,282) is Applicant’s personal federal tax liability for 2010. Applicant’s attorney is in negotiations with the IRS to secure a payment schedule. This tax liability is for additional income that was earned at the end of 2010. Applicant did not pay estimated tax on the income. He used business profits from that year to pay other debts. He was aware he owed this money and knew he would incur penalties and interest, but decided to pay other debts first. He is resolving the debt (1.i). The debt in SOR ¶ 1.j ($943,266) is a judgment against Applicant for property that was surrendered. The judgment was released when Applicant forfeited the deed to the property. There is a zero deficiency on the judgment. Documentation was provided. The debt is resolved (1.j). The debt in SOR ¶ 1.k ($7,552,054) is a judgment against Applicant pursuant to foreclosure proceedings on property that Applicant purchased in 1986. He refinanced the loan in 2004 and paid it until he began having financial problems in 2007 and 2008. This property is included in the Chapter 11 bankruptcy and is presently in mediation. It is yet to be determined whether the property will be surrendered with no deficiency owed or whether the loan will be reinstated. The debt is being resolved (1.k). The debt in SOR ¶ 1.l ($301,171) is a judgment. An investor bought the note on the property. The investor did not want it included in the Chapter 11 bankruptcy, so Applicant released the property and they agreed there would be no deficiency owed. Because the investor was going to object to the property being included in the Chapter 11, Applicant and the other creditors were concerned that this could derail the entire process, so Applicant agreed to surrender the property (1.l). The debt in SOR ¶ 1.m ($389,817) is a judgment for commercial property. There is a forbearance agreement with the creditor which will release the judgment. It is included in the Chapter 11 bankruptcy reorganization. The forbearance agreement dictates what payments will be made on the property. Documents were provided (1.m). The debt in SOR ¶ 1.n ($932,009) was for commercial property that Applicant had purchased with his partner, who then filed for bankruptcy. Applicant gave the property back to the creditor and paid $75,000 to settle the remaining deficiency. Documents were provided (1.n). The debt in SOR ¶ 1.o ($2,635,136) was a judgment for commercial property. Applicant was making payments to the creditor of $10,000 a month for eight months per an agreement and then the payment went up to $20,000 per month. Applicant could not meet the payments. He attempted to return the property to the creditor, but it did not want to sell it. It was agreed that Applicant would attempt to sell the property over the next six months and no mortgage payments would be due during that time. In May 2012, the two parties will meet for mediation. Applicant is hopeful the property will sell. If it does not, Applicant is hopeful the creditor will take it back. The property is appraised for more than the amount of the judgment. It is included in the Chapter 11 bankruptcy reorganization plan. The debt is being resolved. Documents were provided (1.o). The debt in SOR ¶ 1.p ($1,853,868) is for a mortgage on property that was defaulted on. It is not included in the Chapter 11 bankruptcy reorganization. The property was returned to the creditor and there is a $200,000 deficiency. Applicant has paid $95,000 and is making monthly payments of $7,500. The debt is being resolved. Documents were provided (1.p).

The judge granted the clearance. The government raised disqualifying conditions F.1, F.2. The judge applied mitigating conditions F.3, F.4, F.5. The decision turned on the following: The applicant successfully mitigated financial concerns by demonstrating a commitment to resolving debts through a Chapter 11 bankruptcy plan; The applicant's business showed significant recovery and profitability, indicating improved financial stability; The applicant provided credible evidence of efforts to address tax liabilities and other debts, including ongoing negotiations with the IRS.

Why the Applicant Prevailed

• The applicant successfully mitigated financial concerns by demonstrating a commitment to resolving debts through a Chapter 11 bankruptcy plan.
• The applicant's business showed significant recovery and profitability, indicating improved financial stability.
• The applicant provided credible evidence of efforts to address tax liabilities and other debts, including ongoing negotiations with the IRS.

Conditions Referenced

Key Rule Quoted

“The protection of the national security is the paramount consideration.”

Procedural Posture

• SOR issuedAug 15, 2011
• Answer filedAug 25, 2011
• Hearing heldApr 18, 2012
• Decision dateMay 2, 2012

Cite For

• Mitigation of Financial Issues Under Guideline F
• Impact of Business Decisions on Financial Stability
• Resolution of Tax Liabilities in Security Clearance Cases