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ISCR Case 03-10324.h1 — CASE

ISCR Case 03-10324.h1granted

Case Headnote

ISCR Case No. 03-10324.h1

grantedJun 7, 2005· Hon. Joseph Testan· hearing

Summary

A 50-year-old defense contractor was granted a security clearance despite past issues under Guideline E (Personal Conduct) and Guideline F (Financial Considerations). These concerns stemmed from his decision to opt out of the income tax system in the 1980s and early 1990s, leading to tax evasion and significant financial difficulties.

Specific allegations included federal tax liens filed in October 1994 for $28,798.68, covering tax years 1981, 1982, 1986, 1988, and 1989, and another in 1999 for $49,595.71, covering tax years 1984, 1986, 1987, 1989, 1990, 1991, 1992, and 1993. He filed for Chapter 7 bankruptcy four times between July 1993 and August 2004, primarily to discharge his IRS debt. While earlier attempts were dismissed or only discharged non-IRS debts, his fourth petition in August 2004 successfully discharged over $100,000 in back taxes, penalties, and interest in November 2004.

The clearance was granted because the applicant demonstrated substantial rehabilitation. He has complied with all tax laws since 1994, filed all past-due returns, and the judge found no credible evidence of current financial difficulties. The conduct in question occurred over ten years prior to the decision, supporting the finding of rehabilitation.

Why the Applicant Prevailed

The applicant has complied with tax laws since 1994 and filed all past-due returns.
There is no credible evidence of current financial difficulties.
The conduct in question occurred over ten years ago, indicating rehabilitation.

Conditions Referenced

Disqualifying

E2.A6.1.2.1raisedA History of Not Meeting Financial Obligations
E2.A6.1.2.2raisedIncome Tax Evasion

Mitigating

E2.A6.1.3.1appliedThe Behavior Was Not Recent

Key Rule Quoted

“Had this conduct occurred more recently, he would not be eligible for a security clearance.”

Procedural Posture

SOR issuedNov 2, 2004
Answer filedNov 24, 2004
Hearing heldJan 31, 2005
Decision dateJun 7, 2005

Cite For

Application of Mitigating Conditions for Past Financial Issues
Consideration of Time Elapsed Since Disqualifying Conduct
Evaluation of Current Financial Stability in Security Clearance Decisions.

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: granted

The judge found that the applicant's conduct involved questionable judgment regarding tax obligations, but due to the passage of time and the applicant's compliance with tax laws since 1994, the concerns were mitigated. Ultimately, Guideline E was found for the applicant, and a security clearance was granted.

¶	Allegation	Finding	Conduct	Concealed Issue	Response	Disqualifying (¶16)	Mitigating applied (¶17)	Mitigation
1–2	2 sub-charges — specific text not stated in this decision (for the applicant).	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: granted

The applicant had a history of financial difficulties primarily due to tax evasion, which included multiple tax liens and bankruptcy filings. However, the judge found that the applicant has since complied with tax laws, has not experienced recent financial difficulties, and the poor judgment occurred over ten years ago, leading to a decision in favor of the applicant under Guideline F.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	In October 1994, a Federal tax lien was filed against him. This lien, in the amount of $28,798.68, covered delinquent income tax, penalties, and interest that applicant owed for tax years 1981, 1982, 1986, 1988, and 1989. $28,798	For Applicant	Tax Unpaid	Unknown	(a) inability to satisfy debts (b) unwillingness to satisfy debts regardless of ability	(c) received/receiving counseling; problem being resolved	—
1.b	In 1999, the IRS filed a new tax lien against applicant. The new lien, in the total amount of $49,595.71, covered tax years 1984, 1986, 1987, 1989, 1990, 1991, 1992 and 1993. $49,595	For Applicant	Tax Unpaid	Unknown	(a) inability to satisfy debts (b) unwillingness to satisfy debts regardless of ability	(c) received/receiving counseling; problem being resolved	—
1.c	Until very recently, applicant owed the IRS a little over $100,000.00 in back taxes, penalties and interest for numerous tax years prior to 1994. In late 2004, this tax obligation was discharged by a bankruptcy court. $100,000	For Applicant	Tax Unpaid	Unknown	(a) inability to satisfy debts (b) unwillingness to satisfy debts regardless of ability	(c) received/receiving counseling; problem being resolved	—
1.d	In July 1993, applicant filed a Chapter 7 bankruptcy petition. The main reason for the filing was to have his IRS debt discharged. In December 1993 applicant's petition was dismissed without prejudice.	For Applicant	Bankruptcy Filing	Unknown	(a) inability to satisfy debts	—	—
1.e	In March 1994, applicant filed another Chapter 7 bankruptcy petition, again trying to get his tax debt discharged. His effort failed and his petition was dismissed in September 1994.	For Applicant	Bankruptcy Filing	Unknown	(a) inability to satisfy debts	—	—
1.f	In July 1997, applicant filed a third Chapter 7 bankruptcy petition. All of applicant's debts, except his IRS debt, were discharged in November 1997.	For Applicant	Bankruptcy Filing	Unknown	(a) inability to satisfy debts	—	—
1.g	In August 2004, applicant filed his fourth and final Chapter 7 bankruptcy petition seeking to have his IRS debt discharged. In November 2004, the bankruptcy court discharged all of applicant's debts, including his IRS debt.	For Applicant	Bankruptcy Filing	Unknown	(a) inability to satisfy debts	—	—

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

DATE: June 7, 2005

In Re:

-------------------

SSN: -----------

Applicant for Security Clearance

ISCR Case No. 03-10324

DECISION OF ADMINISTRATIVE JUDGE

JOSEPH TESTAN

SYNOPSIS

Applicant exercised extremely poor judgment when he decided in the 1980sand early 1990sto opt out of the income tax system. However, based on the passage of time since this conduct occurred (at least ten years), applicant's recognition that he was wrong, his timely compliance with the tax laws since 1994, and the lack of any credible evidence that he is currently experiencing financial difficulties, Guideline F is found for him. Clearance is granted.

STATEMENT OF CASE

On November 2, 2004, the Defense Office of Hearings and Appeals (DOHA), pursuant to Executive Order 10865 and Department of Defense Directive 5220.6 (Directive), dated January 2, 1992, issued a Statement of Reasons (SOR) to applicant which detailed reasons why DOHA could not make the preliminary affirmative finding under the Directive that it is clearly consistent with the national interest to grant or continue a security clearance for applicant and recommended referral to an Administrative Judge to determine whether clearance should be denied or revoked.

Applicant responded to the SOR in writing on November 24, 2004. A Notice of Hearing was issued on December 29, 2004. The case was reassigned to the undersigned on January 13, 2005. The hearing was held on January 31, 2005. Following the hearing, applicant submitted two sets of documents. The submission dated February 16, 2004, and Department Counsel's letter indicating she has no objection to it (total of 6 pages), were marked as Exhibit B. The submission dated February 28, 2005, and Department Counsel's letter indicating she has no objection to it (total of 4 pagers), were marked as Exhibit C. Both exhibits were admitted into evidence. The transcript was received on February 16, 2005.

FINDINGS OF FACT

Applicant is a 50 year old employee of a defense contractor.

Applicant's financial difficulties began in the early 1980swhen he was drawn to a tax movement that argued, in essence, that paying income tax was voluntary. Applicant followed the advice of the movement's advocates and (1) began claiming an improper number of exemptions, which resulted in no income being withheld from his paycheck, and (2) stopped filing Federal income tax returns. Because the "IRS did not bother [him] for the longest time . . . [he] was convinced that [it] worked" (TR at 36). Eventually, the IRS caught up with him. In October 1994, a Federal tax lien was filed against him. This lien, in the amount of $28,798.68, covered delinquent income tax, penalties, and interest that applicant owed for tax years 1981, 1982, 1986, 1988, and 1989. In addition, the IRS seized about $30,000.00 of applicant's property.

In 1994, applicant met with an IRS agent and filed his past-due returns. Since then, he has filed all tax returns and paid all income tax that came due. Applicant testified that he does not know if the movement's points about the tax law are correct. In his words, "I don't know what to believe other than I don't want to play that game anymore" (TR at 39). As evidenced by his compliance with the tax laws during the past ten years, applicant now understands that, regardless of what he may personally believe, he is required to pay income tax and file tax returns.

Over the years, applicant's debt to the IRS for past-due taxes, penalties and interest for tax years 1984-1993 continued to grow. In 1999, the IRS filed a new tax lien against applicant. The new lien, in the total amount of $49,595.71, covered tax years 1984, 1986, 1987, 1989, 1990, 1991, 1992 and 1993. By November 2004, applicant's IRS debt for those tax years had grown to a little over $100,000.00.

In July 1993, applicant filed a Chapter 7 bankruptcy petition. The main reason for the filing was to have his IRS debt discharged. In December 1993 applicant's petition was dismissed without prejudice.

In March 1994, applicant filed another Chapter 7 bankruptcy petition, again trying to get his tax debt discharged. His effort failed and his petition was dismissed in September 1994.

In July 1997, applicant filed a third Chapter 7 bankruptcy petition. All of applicant's debts, except his IRS debt, were discharged in November 1997.

In August 2004, applicant filed his fourth and final Chapter 7 bankruptcy petition seeking to have his IRS debt discharged. In November 2004, the bankruptcy court discharged all of applicant's debts, including his IRS debt. The IRS filed a Certificate of Release of Federal Tax Lien in February 2005 (Exhibit C).

Applicant is not experiencing any significant financial problems at the present time, and there is no reason to believe he is likely to experience any in the future.

CONCLUSION

The evidence establishes that in the early 1980s, applicant bought into the argument that paying income tax was voluntary, and as a result, took steps to take himself out of the income tax system. The evidence further establishes that he did not file income tax returns, or pay any income tax, for many years. These facts require application of Disqualifying Conditions E2.A6.1.2.1 (a history of not meeting financial obligations), and E2.A6.1.2.2 (income tax evasion) of the Financial Considerations guideline.

In 1994, applicant met reality. The IRS went after him by seizing his assets and filing tax liens against him. He soon realized that, despite his beliefs, he could not opt out of the income tax system. He responded to this realization by filing his past-due tax returns, and since 1994, by complying with the tax laws by filing his income tax returns and paying his yearly income tax.

Until very recently, applicant owed the IRS a little over $100,000.00 in back taxes, penalties and interest for numerous tax years prior to 1994. In late 2004, this tax obligation was discharged by a bankruptcy court. Although applicant's tax debt existed until very recently, the poor judgment and irresponsible conduct which got him into the tax (and financial) trouble occurred ten years ago. Accordingly, Mitigating Condition E2.A6.1.3.1 (the behavior was not recent) is applicable.

Applicant's current financial condition is not a security concern. At the present time, he is financially stable, and there is no reason to believe he is unlikely to remain that way. His decision to exempt himself from paying income tax for several years prior to 1994 is the security concern. This decision was completely irresponsible, and the judgment he used to reach it could not have been poorer. Had this conduct occurred more recently, he would not be eligible for a security clearance. However, as noted above, this conduct occurred ten years ago. Since then, applicant has complied with the tax laws. Although applicant's irresponsible conduct is certainly not condoned, based on the passage of time since it occurred, the fact that applicant has learned from his mistake, and the fact he is not experiencing any financial difficulties at the present time, Guideline F is found for him.

With respect to Guideline E, there is no question that applicant's conduct involved questionable judgment. However, given the passage of time since the questionable judgment occurred, the fact that he learned from it, and the lack of any evidence of other questionable judgment, Guideline E is found for applicant.

FORMAL FINDINGS

PARAGRAPH 1: FOR THE APPLICANT

PARAGRAPH 2: FOR THE APPLICANT

DECISION

In light of all the circumstances presented by the record in this case, it is clearly consistent with the national interest to grant or continue a security clearance for applicant.

____________________________

Joseph Testan

Administrative Judge

FOOTNOTES

03-10324.h1 FOR GOVERNMENT Jennifer I. Campbell, Department Counsel FOR APPLICANT Alan R. Johns, Esq. file:///usr.osd.mil/...Computer/Desktop/DOHA%20transfer/DOHA-Kane/dodogc/doha/industrial/Archived%20-%20HTML/03-10324.h1.html[6/24/2021 3:17:32 PM] 03-10324.h1