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ISCR Case 02-04924.h1 — CASE

ISCR Case 02-04924.h1denied

Case Headnote

ISCR Case No. 02-04924.h1

deniedDec 11, 2002· Hon. Michael H. Leonard· hearing

Summary

A 41-year-old married woman, involved in her family's trucking business, was denied a security clearance primarily due to significant financial and personal conduct concerns. The Statement of Reasons (SOR) cited Guideline E (Personal Conduct), Guideline F (Financial Considerations), and Guideline J (Criminal Conduct).

Specifically, the applicant was delinquent on over $99,000 in federal income taxes for tax years 1994, 1995, 1996, 1997, 1998, and 2000, leading to three federal tax liens filed by the IRS. Additionally, four municipal fire protection liens totaling approximately $410 were filed against her. The SOR also alleged deliberate falsification of her security-clearance application (SF 86) regarding her financial record and delinquencies, which the applicant denied.

The judge determined that the applicant's history of not meeting financial obligations, evidenced by over $90,000 in unpaid federal income taxes, raised significant security concerns. Despite her acknowledgment of the tax debts and efforts toward resolution, these actions were deemed insufficient to mitigate the identified issues, resulting in the denial of her security clearance.

Why the Applicant Was Denied

Applicant has over $90,000 in unpaid federal income taxes, demonstrating a history of not meeting financial obligations.
The applicant's efforts to resolve her tax debts were deemed insufficient to mitigate security concerns.

Conditions Referenced

Disqualifying

F1raisedA History of Not Meeting Financial Obligations
F3raisedInability or Unwillingness to Satisfy Debts

Key Rule Quoted

“"A person who is unable or unwilling to fulfill their financial obligation to pay federal income taxes--as required by law--creates a reasonable doubt about that person's fitness or suitability for access to classified information."”

Procedural Posture

SOR issuedMay 9, 2002
Answer filedMay 21, 2002Applicant requested a hearing.
Hearing heldJul 30, 2002Joint hearing with spouse.
Decision dateDec 11, 2002

Cite For

Financial Irresponsibility as a Disqualifying Factor Under Guideline F
Insufficient Evidence to Mitigate Significant Tax Debts
The Impact of Unpaid Federal Income Taxes on 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 E (Personal Conduct) · descriptive summary of a decided case

Posture: Decision on RecordDecided: denied

The judge found that the applicant's responses on her security clearance application were not deliberately false, resolving the personal conduct concerns in her favor. The applicant's financial issues were acknowledged, but the judge concluded that there was no intent to mislead regarding her financial history.

¶	Allegation	Finding	Conduct	Concealed Issue	Response	Disqualifying (¶16)	Mitigating applied (¶17)	Mitigation
2.a	Applicant deliberately falsified her security-clearance application (SF 86) when responding to four different questions concerning her financial record and delinquencies.	For Applicant	Falsification Security FormNOT DELIBERATE	Financial	Denied	—	—	—
2.b–2.c	2 sub-charges — specific text not stated in this decision (for the applicant). (low confidence)	For Applicant		—		—	—	—

Descriptive standardized rendering of a decided public case (Guideline E). The verbatim source decision is shown in full below.

Standardized Decision Profile

SEAD-4 Guideline F · descriptive summary of a decided case

Posture: Decision on RecordDecided: denied

The applicant has significant unpaid federal income tax debts exceeding $90,000, which raised security concerns under Guideline F. The judge found that the applicant's financial issues were not sufficiently mitigated, resulting in a denial of the security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	Applicant is delinquent on both local and federal taxes. Specifically, the SOR alleges four municipal fire protection liens were filed against Applicant for about $410. $410	Against Applicant	Unspecified Financial	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.b	The delinquent debt to the U.S. Internal Revenue Service (IRS) is based on personal income taxes for more than $99,000 for tax years 1994, 1995, 1996, 1997, 1998, and 2000. $99,000	Against Applicant	Tax Unpaid	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.c	Due to the unpaid taxes, the IRS filed three federal tax liens against all property and rights to property belonging to Applicant, plus additional penalties, interest, and costs.	Against Applicant	Unspecified Financial	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.d–1.k	8 sub-charges — specific text not stated in this decision (3 against, 5 for the applicant). (low confidence)	Mixed			—	—	—

Descriptive standardized rendering of a decided public case (Guideline F). The verbatim source decision is shown in full below.

Standardized Decision Profile

SEAD-4 Guideline J (Criminal Conduct) · descriptive summary of a decided case

Posture: Decision on RecordDecided: denied

The judge found that the applicant did not deliberately falsify her security-clearance application, resolving the criminal conduct allegations in her favor. However, the overall decision regarding the security clearance was denied due to financial considerations under Guideline F.

¶	Allegation	Finding	Offense	Criminal disposition	Response	Disqualifying (¶31)	Mitigating applied (¶32)	Mitigation
3.a	SOR ¶ 3 alleges criminal conduct based on the alleged falsifications of her security-clearance application. Applicant admits to the tax delinquencies, but denies the falsification allegations and the related criminal conduct.	For Applicant	Unspecified Criminal Conduct	—	Denied	—	—	—

Descriptive standardized rendering of a decided public case (Guideline J). 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

DATE: December 11, 2002

In re: -------------------- SSN: ----------- Applicant for Security Clearance

ISCR Case No. 02-04924 DECISION OF ADMINISTRATIVE JUDGE MICHAEL H. LEONARD

FOR GOVERNMENT Henry Lazzaro, Esquire, Department Counsel FOR APPLICANT Pro Se SYNOPSIS Applicant is a 41-year-old married woman who, although not technically a company employee or officer, works full- time for the family's trucking company. She and her spouse owe more than $90,000 in unpaid federal income taxes for several recent tax years. The record evidence is insufficient to mitigate or extenuate the negative security implications stemming from a delinquent tax debt of such magnitude. Clearance is denied.

STATEMENT OF CASE

On May 9, 2002, the Defense Office of Hearings and Appeals (DOHA) issued a Statement of Reasons (SOR) to Applicant. The SOR advised Applicant that DOHA was unable to find--as required under Executive Order 10865 and DoD Directive 5220.6, dated January 2, 1992--that it is clearly consistent with the national interest to grant or continue a security clearance for Applicant. On May 21, 2002, Applicant answered the SOR and she requested a clearance decision based on a hearing record. DOHA assigned the case to me on July 1, 2002. Thereafter, on July 15th a notice of hearing was issued to the parties scheduling the hearing for July 30, 2002. At the hearing, Department Counsel presented 13 documentary exhibits that were admitted without objections; no witnesses were called. Applicant presented seven documentary exhibits that were admitted without objections; she testified on her own behalf as did her spouse. I received the hearing transcript on August 22, 2002.

PROCEDURAL MATTERS

This case involved a joint hearing with Applicant and her spouse, also an applicant for a security clearance. On July 9, 2002, I held a pre-hearing conference and raised the idea of conducting a joint hearing because the applicants are married to each other, the SORs are nearly identical, the applicants' answers to the SORs are nearly identical, and the cases appear factually intertwined. Neither Department Counsel nor Applicant raised an objection or voiced a concern about a joint hearing. At the hearing, I discussed this matter with the parties, gave a more formal instruction on the nature of a joint hearing, and the parties again did not raise any objections. (1)

FINDINGS OF FACT

In her Answer, Applicant admitted the SOR allegations in subparagraphs 1.a. through 1.k.; she denied the SOR allegations in subparagraphs 2.a., 2.b., 2.c., and 3.a. Accordingly, I incorporate her admissions into the findings of fact. Applicant is a 41-year-old married woman who, along with her spouse, operates a farm and a trucking company. Although not technically an employee or officer of the corporation, she is involved in the day-to-day operations of the trucking company by handing the numerous administrative tasks and obligations involved in running a small business. She is seeking access to classified information so the trucking company can haul loads involving the defense industry. Applicant's spouse started the trucking company in 1982. Applicant and her spouse married in 1989, and the marriage has produced two children, a daughter born in 1994 and a son in 1995. Applicant is a college graduate with a bachelor's degree in early childhood education; she has also completed some work on a master's degree. She was employed full-time as a kindergarten teacher before quitting to devote her time and efforts to the family business. SOR ¶ 1 alleges Applicant is delinquent on both local and federal taxes. Specifically, the SOR alleges four municipal fire protection liens were filed against Applicant for about $410. The delinquent debt to the U.S. Internal Revenue Service (IRS) is based on personal income taxes for more than $99,000 for tax years 1994, 1995, 1996, 1997, 1998, and 2000. Due to the unpaid taxes, the IRS filed three federal tax liens against all property and rights to property belonging to Applicant, plus additional penalties, interest, and costs. SOR ¶ 2 alleges Applicant deliberately falsified her security- clearance application (SF 86) (2) when responding to four different questions concerning her financial record and delinquencies. And SOR ¶ 3 alleges criminal conduct based on the alleged falsifications of her security-clearance application. Applicant admits to the tax delinquencies, but denies the falsification allegations and the related criminal conduct. In May 2001, Applicant completed her SF 86. In response to Question 36 concerning tax liens within the last seven years, Applicant answered "yes" disclosing a federal tax lien for $400 filed against her in 1995. In response to Question 37, she answered "no" thereby denying any unpaid judgments against her in the last seven years. In response to Question 38 concerning debts more than 180-days delinquent within the last seven years, Applicant answered "yes" disclosing a federal income tax delinquency for $5,000 incurred in 1997. And in response to Question 39 concerning debts currently more than 90-days delinquent, Applicant answered "yes" disclosing the same $5,000 tax debt. In December 2001, Applicant and her spouse were both interviewed by a special agent of the Defense Security Service (DSS). The interview produced a written statement, (3) dated December 17th, wherein Applicant detailed her knowledge of the tax liens and unpaid taxes. Applicant also denied any intent to deliberately provide false or misleading information on his SF 86. In her statement, Applicant mentioned an initial interview in August 2001 where she and her spouse speculated they owed the IRS about $28,000. They suggested the DSS agent contact their attorney who was handling their tax problems and had all the relevant documents. Applicant and her spouse were interviewed in October 2001 and learned from the agent that they owed about $91,000 to the IRS. On December 12th the applicants were interviewed for the third time by the same DSS agent. During this interview the applicants learned they owed taxes for tax year 2000, and they also learned about the four municipal fire liens. The applicants were interviewed for the fourth and last time on December 17th where they were informed they owed the IRS about $96,000 plus an additional $3,900 or so the tax year 2000. Applicant acknowledged responsibility for all the tax delinquencies. In her statement, Applicant also discussed the circumstances surrounding the judgment taken against the trucking company in 1997 for about $34,000. The judgment was unpaid when the SF 86 was submitted, but satisfied a few months later in October 2001. The lawsuit and judgment were against the trucking company for fuel expenses; Applicant and her spouse were not sued in their personal capacity. (4)

Applicant's statement to the DSS included a personal financial statement current as of December 17th. Although the financial statement shows that Applicant's monthly expenses exceed her monthly income, the statement is not a true picture of the couple's financial situation because it is merely a snapshot that reflects the cyclical nature of the trucking business. Applicant and her spouse credibly explained the circumstances and, aside from the outstanding tax debt, they are otherwise living within their means. At the hearing, Applicant's testified about the circumstances surrounding the completion of their security-clearance applications. Applicant took charge of ensuring that the SF 86swere completed and submitted to the DSS. She was working to meet a self-imposed deadline to submit their SF 86s, along with SF 86sfrom five employees, within a few days so the DSS would conduct the background investigations. If submitted later, she understood their background investigations would be handled by another entity, resulting in delay. This deadline resulted in a rushed atmosphere. Applicant also encountered some difficulties in the completing the forms further complicating the situation. The result was she completed SF 86 worksheets (5) for herself and her husband. The five employees each completed a worksheet. Applicant points out the worksheet only contains one entry for Questions 36, 37, 38, and 39. In other words, the form does not have space for two or more entries in response to these questions. And as a result, Applicant responded with a single entry. Due to the time crunch, Applicant delegated the task of entering the worksheet information into the SF 86 software program to an office clerk. Because the clerk entered the information, Applicant did not know the software program allowed for additional entries to the pertinent questions. Once the clerk completed the task, Applicant completed the process by signing it and having all the SF 86sdelivered to the DSS by the deadline. At present, the 1994 federal income tax debt is paid. (6) In addition, the municipal fire protection liens were paid in June 2002, and the liens were released. (7) Remaining is more than $90,000 owed to the IRS for the other tax years. The couple's federal income tax problems can be traced to tax year 1995 when they were hit with a large (more than $30,000) and an unexpected tax bill. The $30,000 tax debt mushroomed or snowballed resulting in unpaid taxes for several subsequent years. The initial problem resulted from operating the trucking company as a sole proprietorship as opposed to a corporation. A previous accountant had advised that incorporating was not the best method to operate the company. This proved to be unwise advice when the trucking company's annual gross income grew, which, in turn, resulted in higher federal income taxes. The trucking company has since incorporated as an S corporation. Applicant and her spouse have made some efforts over the years to resolve the tax problem with the IRS, including making some irregular payments. The efforts to compromise with the IRS have been unsuccessful, however, no doubt because the IRS is well-secured on real property valued in excess of the tax debt. The couple's recent effort to resolve the matter is to obtain a bank loan. (8) The loan proceeds would be used to pay off the IRS debt, and the bank would take a mortgage against the property. Applicant believes the loan will be approved, although that has not yet occurred. Considering the record evidence as a whole, I specifically make the following findings of fact: 1. Applicant owes the IRS for unpaid federal income taxes more than $90,000 for tax years 1995, 1996, 1997, 1998, and 2000. 2. Applicant's answers to Questions 36, 38, and 39 of her SF 86 were not deliberately false, nor was it a deliberate attempt to provide incomplete or misleading information. 3. Applicant's "no" answer to Question 37 was correct as the unpaid $34,000 judgment was taken against the trucking company, not Applicant or her spouse.

POLICIES

The Directive sets forth adjudicative guidelines to consider when evaluating a person's security-clearance eligibility. Chief among them is the disqualifying and mitigating conditions for each applicable guideline. In addition, each clearance decision must be a fair and impartial commonsense decision based on the relevant and material facts and circumstances, the whole-person concept, and the factors listed in ¶ 6.3.1. through ¶ 6.3.6. of the Directive. Although the presence or absence of a particular condition or factor for or against clearance is not outcome determinative, the adjudicative guidelines should be followed whenever a case can be measured against this policy guidance. Considering the evidence as a whole, the following adjudication policy factors are most relevant here: Guideline F-Financial Considerations The Concern: An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds. Unexplained affluence is often linked to proceeds from financially profitable criminal acts. Conditions that could raise a security concern and may be disqualifying include: (1) A history of not meeting financial obligations; and (3) Inability or unwillingness to satisfy debts. Conditions that could mitigate security concerns include: none. Guideline E-Personal Conduct The Concern: Conduct involving questionable judgment, untrustworthiness, unreliability, lack of candor, dishonesty, or unwillingness to comply with rules and regulations could indicate that the person may not properly safeguard classified information. Conditions that could raise a security concern and may be disqualifying include: none. Conditions that could mitigate security concerns include: none. Guideline J-Criminal Conduct The Concern: A history or pattern of criminal activity creates doubt about a person's judgment, reliability, and trustworthiness. Conditions that could raise a security concern and may be disqualifying include: none. Conditions that could mitigate security concerns include: none. BURDEN OF PROOF The only purpose of a clearance decision is to decide if it is clearly consistent with the national interest to grant or continue a security clearance for an applicant. (9) The Government has the burden of proving controverted facts. (10) The U.S. Supreme Court has said the burden of proof in security clearance cases is less than the preponderance of the evidence. (11) The DOHA Appeal Board has followed the Court's reasoning on this issue (12) establishing a substantial- evidence standard. Once the Government meets its burden, Applicant has the burden of presenting evidence of refutation, extenuation, or mitigation sufficient to overcome the case against him. (13) In addition, Applicant has the ultimate burden of persuasion to obtain a favorable clearance decision. (14)

As noted by the Court in Egan, "it should be obvious that no one has a 'right' to a security clearance," and "the clearly consistent standard indicates that security clearance determinations should err, if they must, on the side of denials." (15) Under Egan, Executive Order 10865, and the Directive, any reasonable doubt about whether an applicant should be allowed access to classified information will be resolved in favor of protecting national security.

CONCLUSION

Under Guideline F, a security concern typically may exist for two different types of situations--significant unpaid debts and unexplained affluence; this case involves the former. An individual who is financially overextended is at risk of having to engage in illegal or unethical acts to generate funds to meet financial obligations. Similarly, an individual who is financially irresponsible may also be irresponsible, unconcerned, careless, or negligent in their obligation to properly safeguard and handle classified information. Here, based on the record as a whole, I conclude the Government has established its case under Guideline F. Applicant has a history of not meeting her financial obligations as well as inability or unwillingness to satisfy her just debts. Unpaid federal income taxes, more than $90,000 over several recent tax years, support these conclusions. Applicant is not an illegal tax protestor and she acknowledges responsibility for the unpaid taxes. But that does not mean a tax debt of this magnitude is not a security concern. It is, notwithstanding Applicant's best intentions. In other words, a person who is unable or unwilling to fulfill their financial obligation to pay federal income taxes--as required by law--creates a reasonable doubt about that person's fitness or suitability for access to classified information. The record evidence shows that is the situation here. Indeed, I cannot reconcile the situation where an applicant with a history of not paying their share of federal income taxes is nonetheless asking that the federal government grant them the privilege of access to classified information. I have reviewed the mitigating conditions (MC) under Guideline F and conclude none apply. In particular, MC 6 (16) does not apply because Applicant's irregular efforts over the years to resolve the federal income tax debt cannot be viewed as good-faith efforts. In addition, although Applicant is trying to obtain a loan to pay off the IRS, I cannot give this information much weight because it is a future event that may or may not happen. Until the delinquent federal income taxes are paid, Applicant and her spouse agree with the IRS on a realistic payment schedule, or another solution is found, the likelihood of continuation or recurrence of the problem remains most probable. The record evidence is insufficient, at this time, to mitigate or extenuate the security concern raised by Applicant's unpaid federal income taxes totaling more than $90,000. Accordingly, Guideline F is resolved against Applicant. Personal conduct under Guideline E is always a security concern because it asks the key question if a person's past conduct justifies confidence the person can be trusted to properly safeguard classified information. Deliberate omission, concealment, or falsification of a material fact in any written document or oral statement to the Government when applying for a security clearance or in other official matters is a security concern. It is deliberate if it is done knowingly and willfully. Here, the totality of facts and circumstances do not convince me that Applicant deliberately omitted or concealed information about her financial history on her SF 86. Instead, I conclude Applicant's efforts to complete the SF 86--while working under time pressures with incomplete information--were in err and less than perfect. Likewise, I'm not convinced Applicant was trying to deliberately mislead security officials by understating or minimizing the situation. Considering the record evidence as a whole, including that some derogatory financial information was disclosed in response to three of the four questions at issue, my commonsense conclusion is Applicant's answers to Questions 36, 38, and 39 were mistaken, but not deliberately false. Accordingly, Guideline E is resolved in Applicant's favor. Using the same reasoning, the Government has not established Applicant violated Title 18 U.S.C. § 1001, the federal crime of making a false statement to a governmental agency. Accordingly, Guideline J is resolved in Applicant's favor.

FORMAL FINDINGS

SOR ¶ 1-Guideline F: Against the Applicant Subparagraph a : Against the Applicant Subparagraph b: Against the Applicant Subparagraph c: Against the Applicant Subparagraph d: For the Applicant Subparagraph e: For the Applicant Subparagraph f: For the Applicant Subparagraph g: For the Applicant Subparagraph h: Against the Applicant Subparagraph i: Against the Applicant Subparagraph j: Against the Applicant Subparagraph k: For the Applicant SOR ¶ 2-Guideline E: For the Applicant Subparagraph a: For the Applicant Subparagraph b: For the Applicant Subparagraph c: For the Applicant SOR ¶ 3-Guideline J: For the Applicant Subparagraph a: For the Applicant

DECISION

In light of all the circumstances presented by the record evidence, it is not clearly consistent with the national interest to grant or continue a security clearance for Applicant. Michael H. Leonard Administrative Judge 1. Transcript at pp. 16-19. 2. Exhibit 1. 3. Exhibit 9. 4. Exhibits 10, E, and F. 5. Exhibit A. 6. Exhibit B; transcript at p. 101. 7. Exhibit D. 8. Exhibit G. 9. ISCR Case No. 96-0277 (July 11, 1997) at p. 2. 10. ISCR Case No. 97-0016 (December 31, 1997) at p. 3; Directive, Enclosure 3, Item E3.1.14. 11. Department of Navy v. Egan, 484 U.S. 518, 531 (1988). 12. See, e.g., DOHA Case No. 94-0966 (July 21, 1995) at p. 4 n.4. See also ISCR Case No. 95-0818 (January 31, 1997) at p. 6 (Department Counsel not required to prove its case by "conclusive evidence"); DISCR Case No. 93-0386 (April 21, 1994) at p. 4 ("All that is required . . . is proof based on substantial evidence."). 13. ISCR Case No. 94-1075 (August 10, 1995) at pp. 3-4. 14. ISCR Case No. 93-1390 (January 27, 1995) at pp. 7-8; Directive, Enclosure 3, Item E3.1.15. 15. Egan, 484 U.S. at 528, 531. 16. Item E2.A6.1.3.6. ("The individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.").

FOOTNOTES

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