CASE · Clearance Adjudication Search EngineCASE

Loading case…

ISCR Case 10-06095.h1 — CASE

ISCR Case 10-06095.h1denied

Case Headnote

ISCR Case No. 10-06095.h1

deniedFeb 24, 2012· Hon. Arthur E. Marshall, Jr.· hearing

Summary

A 40-year-old computer specialist was denied a security clearance under Guideline F (Financial Considerations) due to approximately $280,000 in unresolved federal tax debts, including fees and interest, for tax years 2004 through 2010. These debts were attributed to financial mismanagement by his ex-wife.

The applicant admitted to the significant tax debts and a history of financial mismanagement. He filed for Chapter 7 bankruptcy in November 2010, which was discharged in February 2011. He also executed an Offer in Compromise with the IRS, made a good faith payment, and received financial counseling, demonstrating efforts to resolve his tax obligations and manage his finances.

Despite these mitigating efforts, the judge found that the applicant's financial issues, particularly his tax obligations, remained unresolved. The decision concluded that the applicant had not yet demonstrated the ability to manage his finances independently and reliably, leading to the denial of his security clearance.

Why the Applicant Was Denied

Applicant admitted to significant tax debts and a history of financial mismanagement.
The applicant's financial issues remain unresolved, particularly regarding his tax obligations to the IRS.
The applicant has not yet demonstrated the ability to manage his finances independently and reliably.

Conditions Referenced

Disqualifying

AG ¶ 19(a)raisedInability or Unwillingness to Satisfy Debts
AG ¶ 19(c)raisedA History of Not Meeting Financial Obligations

Mitigating

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

Key Rule Quoted

“Any reasonable doubt about whether an applicant should be allowed access to sensitive information must be resolved in favor of protecting such sensitive information.”

Procedural Posture

SOR issuedAug 26, 2011
Answer filedUndated
Hearing heldDec 6, 2011
Decision dateFeb 24, 2012

Cite For

Insufficient Evidence to Mitigate Financial Obligations Under Guideline F
Impact of Unresolved Tax Debts on Security Clearance Eligibility
Importance of Demonstrating Financial Management Capability Post-bankruptcy

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 had significant financial issues, including approximately $280,000 in estimated federal taxes owed and a history of bankruptcy. Although the applicant demonstrated some efforts to address his debts, the judge concluded that the financial concerns were not sufficiently mitigated, resulting in a denial of the security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	Owes approximately $280,000 in estimated federal taxes, including fees and interest. $280,000	Against Applicant	Tax Unpaid	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.b	Owes taxes for tax years 2004 through 2009.	Against Applicant	Tax Unpaid	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.c	Owes taxes for tax year 2010.	Against Applicant	Tax Unpaid	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.d	Filed for Chapter 7 bankruptcy in November 2010.	Against Applicant	Bankruptcy Filing	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.e	Bankruptcy was discharged in February 2011.	Against Applicant	Bankruptcy Filing	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.f	Failed to pay taxes for multiple years due to mismanagement by spouse.	Against Applicant	Tax Filing Failure	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.g	Has received financial counseling and is working on resolving tax debts.	For Applicant	Unspecified Financial	Admitted	—	(c) received/receiving counseling; problem being resolved	Documented Financial Counseling
1.h	Executed an Offer in Compromise (OIC) with the IRS and made a good faith payment. $2,050	For Applicant	Unspecified Financial	Admitted	—	(d) good-faith effort to repay or otherwise resolve debts	Claimed Debt Paid in Full
1.i	Has a plan to satisfy remaining tax debts and has made efforts to manage finances.	For Applicant	Unspecified Financial	Admitted	—	—	Claimed Budget Change with Documentation

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. 10-06095 ) Applicant for Security Clearance )

For Government: Raashid Williams, Esquire, Department Counsel For Applicant: Pro se

02/24/2012 ______________

STATEMENT OF CASE

______________

MARSHALL, Jr., Arthur E., Administrative Judge:

On August 26, 2011, the Defense Office of Hearings and Appeals (DOHA) issued a Statement of Reasons (SOR) enumerating security concerns arising under Guideline F (Financial Considerations). DOHA took action under Executive Order 10865, Safeguarding Classified Information within Industry (February 20, 1960), as amended; Department of Defense (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.

In an undated response, Applicant admitted seven of the nine allegations raised under Guideline F and requested a hearing before a DOHA administrative judge. DOHA assigned the case to me on November 4, 2011. The parties proposed a hearing date of December 6, 2011. A notice setting that date for the hearing was issued on November 21, 2011. The hearing was convened as scheduled. Applicant testified and offered nine documents that were accepted into the record without objection as exhibits (Exs.) A-I. The Government introduced five documents which were accepted into the record as Exs. 1-5. Applicant was given until January 4, 2012, to submit any additional materials. He timely submitted one additional document, which was accepted without objection as Ex. J, and the record was closed. Based on a review of the testimony, submissions, and exhibits, I find Applicant failed to meet his burden of mitigating security concerns related to financial considerations. Clearance is denied.

FINDINGS OF FACT

Applicant is a 40-year-old computer specialist who has worked for the same defense contractor since August 2009. He completed high school and has an associate’s degree in computer network management. Applicant is divorced and has one young child. A self-described “computer geek,” Applicant has worked in his present field for nearly two decades.

In 2001, Applicant married a woman with whom he had grown up. In 2004, he began working as an independent consultant. His income quickly jumped from about $80,000 to close to $300,000 a year. At the time, he was expecting a child. Because his new job required extensive travel, his wife, who did accounting and bookkeeping for small businesses, managed the family’s finances. Applicant trusted her implicitly. Whenever he would inquire about their finances, she told him that all was well. Knowing that his business was lucrative, he did not challenge his wife’s assessment, even though he knew that they were starting to live extravagently. He was often left out of the decision-making process about acquisitions because he was generally gone from Monday morning until Friday night. His wife often encouraged him to make upgrades to their life. Telling him that there was sufficient money to do so, he bought two costly vehicles and moved from a $180,000 home to one that cost about $500,000. By 2007, his income had been reduced to about $180,000, a downward trend that would continue for the next two years. Meanwhile, unbeknownst to him, his wife was leading “a completely separate life as soon as [he] left” town for work.

Aside from excessive spending, Applicant’s wife stopped paying Applicant’s taxes. Although she would go through the motions of having him sign his tax forms and say that money had been withdrawn from his account for their payment, the forms were never submitted and his taxes were never paid. In 2009, Applicant ran out of work as a consultant and began working for his present employer at a substantially reduced salary. In that same year, he discovered his wife had been having an on-going affair and that he owed federal taxes for multiple years. In July 2009, he filed for divorce. As they headed to their 2010 divorce, he not only learned that his wife had misled him and that he had never had the financial resources to responsibly purchase some of their extravagances, he also discovered other financial irregularities. For example, sums he had allocated for their child’s future had never been invested. He then started trying to settle some of the debts he discovered. Applicant petitioned for divorce predicated on his wife’s infidelity. As a consequence, his wife was outraged. He proved that she had vacated their home, taking most of their possessions and all the jewelry they had acquired. He had to take her to court to sell the marital house, which she initially refused to sell. Ultimately, she was denied financial support and Applicant won a $75,000 judgment against her. Shortly after the divorce, his ex-wife filed for bankruptcy as a ploy to vacate the judgment owed to Applicant. Applicant provided evidence that her assets were over $100,000, far exceeding the $50 she listed in her bankruptcy petition. She is now facing bankruptcy fraud charges.

As a result of Applicant’s drop in income, he could not make payments on those debts associated with the house and the vehicles. With a substantially reduced income and only the expectation of receiving the judgment against his ex-wife, Applicant consulted an attorney to help him negotiate with the Internal Revenue Service (IRS) regarding his tax debt. Counsel recommended that he first work on his bankruptcy petition and address any extraneous debts. Applicant filed for Chapter 7 bankruptcy in November 2010 after satisfying the debts noted in the SOR at ¶ 1.gand ¶ 1.h, leaving his tax debts as his remaining financial issues (SOR allegations ¶¶ 1.a - 1.f). His bankruptcy was discharged in February 2011.

In the interim, Applicant’s attorney proceeded with IRS negotiations and Applicant received financial counseling. On August 20, 2011, an Offer in Compromise (OIC) package was submitted to the IRS on Applicant’s behalf for tax years 2004 through 2010. Including fees and interest, the estimated sum at issue is about $280,000. The package included all necessary forms, financial statements, filing fees, and an initial deposit check for $2,050. The IRS accepted Applicant’s package and deposited his check. Negotiations are still going on to complete the IRS’ determination of whether it will accept the offered lump sum or the lump sum plus additional payments. Applicant’s counsel is still working on the matter. It is unclear when the process will be completed. His counsel believes the final sum for the tax years at issue will be about $10,000, after the fees are repealed and the sum negotiated down. Consequently, the $2,050 initial payment is considered to be a 20% good faith payment on the compromise. Applicant intends to satisfy the resultant debt by liquidating part of his 401kplan, which currently has a balance of about $17,000. He also has a current income of about $93,000.

Applicant has acquired no new debt and lives within a defined budget. Except for Internet/cable service, he lives simply. Applicant’s child lives with him half the time. Some of his current spare income is for her extracurricular activities (i.e. about $300 for piano and gymnastics). Applicant has learned from his mistakes, developed personal financial strategies, and changed his “entire lifestyle.” Applicant now manages his own finances, except for issues related to his taxes.

POLICIES

When evaluating an applicant’s suitability for a security clearance, an administrative judge must consider the AG. In addition to brief introductory explanations for each guideline, the AG list potentially disqualifying conditions and mitigating conditions. These guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, these guidelines are applied in conjunction with the factors listed in the adjudicative process. The administrative judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision. Under AG ¶ 2(c), this process is a conscientious scrutiny of a number of variables known as the “whole- person concept.” The administrative judge must consider all 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.” In reaching this decision, I have drawn only those conclusions that are reasonable, logical, and based on the evidence contained in the record.

The Government must present evidence to establish controverted facts alleged in the SOR. An applicant is responsible for presenting “witnesses and other evidence to rebut, explain, extenuate, or mitigate facts admitted by applicant or proven by Department Counsel. . . .” The burden of proof is something less than a preponderance of evidence. The ultimate burden of persuasion is on the applicant.

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 those 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 about potential, rather than actual, risk of compromise of classified information.

Section 7 of Executive Order 10865 provides that 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). “The clearly consistent standard indicates that security clearance determinations should err, if they must, on the side of denials.” Any reasonable doubt about whether an applicant should be allowed access to sensitive information must be resolved in favor of protecting such sensitive information.13

Based upon consideration of the evidence, Guideline F (Financial Considerations) is the most pertinent to this case. Conditions pertaining to this AG that could raise a security concern and may be disqualifying, as well as those which would mitigate such concerns, are set forth and discussed below.

ANALYSIS

Guideline F - Financial Considerations

Under Guideline F, “failure or an 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.” It also states that “an individual who is financially overextended is at risk of having to engage in illegal acts to generate funds.” The Government’s evidence showed that Applicant has been deemed responsible for about $280,000 in estimated federal taxes, including fees and interest. There was also evidence of his 2009 Chapter 7 bankruptcy. Such facts are sufficient to raise Financial Considerations Disqualifying Condition (FC DC) AG ¶ 19(a) (inability or unwillingness to satisfy debts) and FC DC AG ¶ 19(c) (a history of not meeting financial obligations). With such conditions raised, it is left to Applicant to overcome the case against him and mitigate security concerns. The debts at issue are multiple in number. They were acquired over a protracted period of time, from approximately 2004 through 2009. During that time, Applicant thoroughly deferred to his wife to manage the household accounts, despite considerable evidence that the couple was leading an extravagant lifestyle. Applicant admits that he failed to adequately inquire about their expenses and finances. Moreover, while the extraneous debts have been addressed, Applicant’s taxes remain at issue, despite the best efforts of Applicant and his tax attorney. This includes not only the taxes at issue in the SOR (2004-2009), but also his tax debt for 2010. At present, his net monthly remainder is lean. Until his tax issue is resolved and a final sum is compromised, it cannot be discerned whether Applicant has the financial resources to meet his IRS obligation. Furthermore, Applicant has not yet had an opportunity to show that he can personally handle his finances independently and reliably. While the facts regarding the creation of the debts are unique and Applicant has demonstrated improved judgment and responsibility, there is insufficient evidence to raise Financial Considerations Mitigating Condition (FC MC) AG ¶ 20(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) or FC MC AG ¶ 20(b) (the conditions that resulted in the behavior were largely beyond the person’s control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation) and the individual acted responsibly under the circumstances).

Applicant has received financial counseling. With the knowledge gained, he satisfied some of his debts, formulated a budget, proceeded with a bankruptcy petition, and has followed the advice of a tax attorney concerning his IRS debt. With only his tax debts remaining at issue, Applicant has executed an OIC with the IRS and made a good faith payment. Consequently, there are sufficient facts to raise FC MC AG ¶ 20(c) (the person has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control). However, because the total sum to be paid to the IRS has yet to be determined, Applicant’s payment of $2,050 only raises FC MC AG ¶ 20(d) (the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts) to a limited extent.

WHOLE PERSON CONCEPT

Under the whole-person concept, an administrative judge must evaluate an applicant’s eligibility for a security clearance by considering the totality of an applicant’s conduct and all the circumstances. An administrative judge should consider the nine adjudicative process factors listed at AG ¶ 2 (a). Under AG ¶ 2(c), the ultimate determination of whether to grant a security clearance must be an overall commonsense judgment based on careful consideration of the guidelines and the whole-person concept. In addition, what constitutes reasonable behavior in such cases, as contemplated by FC MC ¶ 20(b), depends on the specific facts in a given case.

I considered the potentially disqualifying and mitigating conditions in light of all the facts and circumstances surrounding this case, as well as the whole-person factors. Applicant is a mature and highly credible professional. During his marriage, he was offered a highly lucrative professional opportunity that demanded he work out of town Monday through Friday. He depended on his wife, a bookkeeper, to manage the household accounts. Unbeknownst to him, his wife abused his trust by overspending, mishandling his finances, and conducting an affair. Because of his trust in her, Appellant never questioned their lifestyle despite the fact their lifestyle was becoming conspicuously lavish – even as his high salary began to decrease.

Applicant discovered his wife’s affair and her financial abuse in 2009. He divorced her and tried to rehabilitate his financial situation. He satisfied most of their debts by payment or bankruptcy. However, he did not pursue a compromise with the IRS over the nearly $280,000 at issue until August 2011. That compromise offer has yet to be accepted. While his tax attorney apparently believes that the matter should be compromised for about $10,000, no evidence to that effect has been received or presented. Therefore, it is premature to conclude that his current net monthly remainder and 401kbalance is sufficient to honor the IRS obligation at issue (2004-2009) and any additional debt due from 2010.

This process does not demand that all of an applicant’s debts be paid. It does, however, require that an applicant present a workable plan for satisfying his debts and evidence that such a plan has been implemented successfully. Here, Applicant has a plan. Until the IRS sets a sum certain for his tax liability, however, it cannot be discerned whether the plan can be successfully implemented, despite Applicant’s recent good faith efforts. As previously noted, any reasonable doubt about whether an applicant should be allowed access to sensitive information must be resolved in favor of protecting such sensitive information. Based on Applicant’s evidence and argument, financial considerations security concerns remain unmitigated. As noted, any reasonable doubt about whether an applicant should be allowed access to sensitive information must be resolved in favor of protecting such sensitive information. Clearance is denied.

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.f: Against Applicant Subparagraph 1.g-1.i: For Applicant

CONCLUSION

In light of all of the circumstances presented by the record in this case, it is not clearly consistent with national interest to grant Applicant a security clearance. Clearance denied.

ARTHUR E. MARSHALL, JR. Administrative Judge

FOOTNOTES

Tr. 15. Tr. 16. Tr. 23-24. See also Ex. A (regarding ¶ 1.g) and Ex. J (regarding ¶ 1.h). The SOR sets forth concerns regarding the taxes for tax years 2004 through 2009. Appellant also owes taxes for 2010. Ex. D (OIC package). Tr. 30. Tr. 54-55. After all expenses, Applicant has a net monthly remainder of about $300. That number should increase by about $150 in April 2012, when he will no longer be paying for his ex-wife’s health insurance. Tr. 68. See also ISCR Case No. 94-1075 at 3-4 (App. Bd. Aug. 10, 1995). ISCR Case No. 93-1390 at 7-8 (App. Bd. Jan. 27, 1995). Id. Id. AG ¶ 18. Id.