DATE:  December 13, 2007
In re:
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SSN: ------------
Applicant for Security Clearance
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ISCR Case No. 07-00532
DECISION OF ADMINISTRATIVE JUDGE
MICHAEL H. LEONARD
APPEARANCES
FOR GOVERNMENT
Melvin A. Howry, Esq., Department Counsel
FOR APPLICANT
Pro Se
SYNOPSIS
Federal and state tax authorities are pursuing Applicant for nearly $200,000 in deficiency
amounts for tax years 2002, 2003, and 2004. In an audit in 2007, the IRS concluded that Applicant’s
horse business is a hobby or not-for-profit business and determined he was not entitled to claim
business expenses for those three years. Applicant disagrees and contends that his horse business is
a viable, for-profit business. He is making a good-faith effort to resolve the tax problem by appealing
under the process authorized by law. If he does not prevail, he believes he can repay the tax
deficiencies by selling off the assets of the horse business. Applicant is not a tax protestor, he is not
tax defiant, and he is not engaged in tax evasion or fraud. The potential for pressure, coercion,
exploitation, or duress in a security-clearance context is remote. Clearance is granted.
STATEMENT OF THE CASE
 Executive Order 10865, dated February 20, 1960, as amended, and DoD Directive 5220.6, dated January 2,1
1992, as amended (Directive).
 See Memorandum from the Under Secretary of Defense for Intelligence, dated August 30, 2006, Subject:2
Implementation of Adjudicative Guidelines for Determining Eligibility for Access to Classified Information (December
29, 2005). 
2
This is a security clearance case. Applicant contests the Defense Department’s intent to deny
or revoke his eligibility for a security clearance. Acting under the relevant Executive Order and DoD
Directive,  the Defense Office of Hearings and Appeals (DOHA) issued a statement of reasons1
(SOR) to Applicant on June 7, 2007. The SOR is equivalent to an administrative complaint and it
details the factual basis for the action. The issues in this case fall under Guideline F for financial
considerations based on federal and state tax deficiencies and three delinquent debts for less than
$700 in total.     
In addition to the Directive, this case is brought under the revised Adjudicative Guidelines
for Determining Eligibility for Access to Classified Information (Revised Guidelines) approved by
the President on December 29, 2005. The Revised Guidelines were then modified by the Defense
Department, effective September 1, 2006. They supersede or replace the guidelines published in
Enclosure 2 to the Directive. They apply to all adjudications and other determinations where an SOR
has been issued on September 1, 2006, or thereafter.  The Directive is pending revision or2
amendment. The Revised Guidelines apply here because the SOR is dated after the effective date.
On June 18, 2007, Applicant replied to the SOR and indicated he did not wish to have a
hearing. Subsequently, Applicant changed his mind and requested a hearing on August 6, 2007. The
hearing took place on November 13, 2007, and the transcript was received on November 21, 2007.
The record was left open until November 30  to allow Applicant to submit additional itemsth
of documentary evidence. Those items were timely received and are admitted without objections as
follows: (1) Exhibit E–DD Form 214 and related paperwork; (2) Exhibit F–IRS letter; and (3)
Exhibit G–letter from tax advisor.   
FINDINGS OF FACT
In his Answer to the SOR, Applicant admitted the factual allegations in ¶¶ 1.a, 1.b, and 1.c,
and he denies the allegations in ¶¶ 1.d, 1.e, and 1.f. Based on the record evidence as a whole, the
following facts are established by substantial evidence. 
Applicant is a 63-year-old executive who works in the defense industry. He holds both a
bachelor’s degree and an MBA. He is a retired Navy captain (pay grade 06) having served
approximately 26 years of active and reserve duty. He is active in a local chapter of the Navy League.
In the past, he has held a security clearance issued by the Navy. In August 2006, he submitted a
security-clearance application seeking to obtain an industrial security clearance (Exhibit 1).
This case stems from Applicant’s horse business—which is separate from his employment
in the defense industry—and an ongoing tax dispute.  The business breeds, raises, trains, competes,
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and sells reining horses and working cow horses, and it currently has approximately 25 horses
available for sale (Exhibit B). Applicant estimates that he has invested approximately $600,000 of
his own money into the business (R. 32). The business did not show a profit for 2002, 2003, and
2004, the tax years in question. It had a profit of less than $10,000 in 2006, and Applicant expects
to show a larger profit in 2007. 
Federal and state tax authorities are pursuing Applicant for nearly $200,000 in deficiency
amounts for tax years 2002–2004. In 2004, the IRS placed a federal tax lien against Applicant for
$64,822 (Exhibit 6). The state tax authority followed suit in 2006 and 2007 when it placed tax liens
against Applicant for $2,847 and $27,539 (Exhibits 7 and 8). The state’s action essentially
piggybacks on the IRS action. The most recent information from the IRS indicates the federal tax
deficiency is about $145,863 in total (Exhibit F). Likewise, the state tax deficiency is now
approximately $52,317 in total (Exhibit 10 and R. 57). 
After an audit in May–June 2007, the IRS concluded that Applicant’s horse business is a
hobby or not-for-profit business and determined he was not entitled to claim Schedule F business
expenses for those three years (Exhibits F and G). The IRS notified Applicant of its decision by letter
in July 2007 (Exhibit F). 
Applicant disagrees with the IRS’s decision. He contends that his horse business is a viable,
for-profit business, and he is appealing under the process authorized by law. His case was received
for consideration by the local IRS Appeals Office in September 2007 (Exhibit D).  The tax advisory
firm who prepares Applicant’s tax returns, to include his horse business, has been retained to
represent him in the appeal with the IRS (Exhibit G). According to the president of the firm, an
enrolled agent, the normal time line for an appeal is 18 to 30 months and Applicant’s appeal will
be decided sometime in 2009 (Exhibit G). If Applicant does not win his appeal to the IRS Appeals
Office, he intends to take his case to U.S. Tax Court. Ultimately, if he does not prevail, he believes
he can repay the tax deficiencies by selling off the assets of the horse business (R. 52–54). 
In addition to the tax deficiencies, the SOR alleges three delinquent debts for less than $700
in total. Two of the debts are for medical bills for $277 and $181. The other debt is a collection
account for $171. Applicant agrees that these are his accounts, but contends he does not owe any
money on the accounts. He disputes liability for the medical accounts because he believes the matters
were covered by insurance (he has both Tricare as a retired military officer and  insurance via his
employer). He has given the medical service providers his insurance information and told them to
resolve it with the insurance provider. He disputes liability for the collection account because of a
disagreement over telephone services or equipment. He did not provide any paperwork to document
his disputes for these three accounts. 
GENERAL PRINCIPLES OF LAW AND POLICIES
 Department of Navy v. Egan, 484 U.S. 518, 528 (1988) (“it should be obvious that no one has a ‘right’ to a3
security clearance”); Duane v. Department of Defense, 275 F.3d 988, 994 (10  Cir. 2002) (“It is likewise plain that thereth
is no ‘right’ to a security clearance, so that full-scale due process standards do not apply to cases such as Duane’s.”).
 Egan, 484 U.S. at 531.4
 Directive, Enclosure 3, ¶ 3.2. 5
 Directive, Enclosure 3, ¶ 3.2. 6
 ISCR Case No. 02-18663 (App. Bd. Mar. 23, 2004).7
 Directive, Enclosure 3, ¶ E3.1.14.8
 Directive, Enclosure 3, ¶ E3.1.15.9
 Directive, Enclosure 3, ¶ E3.1.15.10
 Egan, 484 U.S. at 531. 11
 ISCR Case No. 01-20700 (App. Bd. Dec. 19, 2002) (citations omitted).12
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No one has a right to a security clearance.  As noted by the Supreme Court in Department3
of Navy v. Egan, “the clearly consistent standard indicates that security clearance determinations
should err, if they must, on the side of denials.”  A favorable decision establishes eligibility of an4
applicant to be granted a security clearance for access to confidential, secret, or top-secret
information.  An unfavorable decision: (1) denies any application; (2)  revokes any existing security5
clearance; and (3) prevents access to classified information at any level and retention of any existing
security clearance.  Under Egan, Executive Order 10865, and the Directive, any doubt about whether6
an applicant should be allowed access to classified information will be resolved in favor of
protecting national security.
There is no presumption in favor of granting, renewing, or continuing eligibility for access
to classified information.  The government has the burden of presenting evidence to establish facts7
alleged in the SOR that have been controverted.  An applicant is responsible for presenting evidence8
to refute, explain, extenuate, or mitigate facts that have been admitted or proven.  In addition, an9
applicant has the ultimate burden of persuasion to obtain a favorable clearance decision.  In Egan,10
the Supreme Court said that the burden of proof is less than the preponderance of the evidence.  The11
agency appellate authority has followed the Court’s reasoning, and a judge’s findings of fact are
reviewed under the substantial-evidence standard.12
The Revised Guidelines set forth adjudicative guidelines to consider when evaluating a
person’s security clearance eligibility, including disqualifying conditions (DC) and mitigating
conditions (MC) for each guideline. In addition, each clearance decision must be a fair and impartial
commonsense decision based upon consideration of all the relevant and material information, the
pertinent criteria and adjudication factors, and the whole-person concept. A person granted access
to classified information enters into a special relationship with the government. The government
must be able to have a high degree of trust and confidence in those persons to whom it grants access
to classified information. The decision to deny a person a security clearance is not a determination
 Executive Order 10865, § 7.13
 Revised Guidelines at pp. 13–14 (setting forth the disqualifying and mitigating conditions). 14
 Revised Guidelines at p. 13. 15
 “ De minimis is a shortened form of the Latin maxim de minimis non curat lex (= the law does not concern16
itself with trifles).” Bryan A. Garner, A Dictionary of Modern Legal Usage (2d ed. 1995) at p. 263.
 DC 3 is “a history of not meeting financial obligations.” 17
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of an applicant’s loyalty.  Instead, it is a determination that the applicant has not met the strict13
guidelines the President has established for granting eligibility for a security clearance.
CONCLUSIONS
Under Guideline F for financial considerations,  a security concern typically exists due to14
significant unpaid debts. “Failure or 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. An individual who is finally
overextended is at risk of having to engage in illegal acts to generate funds.”  Similarly, an15
individual who is financially irresponsible may also be irresponsible, unconcerned, negligent, or
careless in properly handling and safeguarding classified information. 
Starting with the matters in SOR ¶¶ 1.d, 1.e, and 1.f, the three delinquent debts for less than
$700 in total are not of particular security concern. Viewed individually, in the aggregate, and in
conjunction with the tax problem, these three debts do not rise to the level of a bonafide security
concern. First, the amounts are minor if not de minimis.  Second, it is highly unlikely that these three16
debts could interfere with Applicant’s ability to properly handle and safeguard classified information.
Third, the two unpaid medical debts in particular have negligible security value. Experience in the
ways of the world teaches that medical billing can be problematic, even when a consumer is covered
by insurance. Confusion and disputes between consumers, doctors and hospitals, and insurers are
not uncommon. A dispute over a couple of minor medical debts is not generally reflective of a
person’s ability or willingness to repay or of a person’s financial responsibility. To sum up, the two
unpaid medical debts and the collection account suggest that Applicant is a typical consumer who
has a few disputed accounts, and the three accounts do not suggest that Applicant is an unsuitable
or high-risk candidate for a security clearance. 
Turning next to the gravamen of the SOR, which is Applicant’s tax problem as set forth in
SOR ¶¶ 1.a, 1.b, and 1.c. The record evidence supports a conclusion that Applicant has a history of
financial problems. The state and federal tax liens and tax deficiencies (now approaching $200,000
in total) establish a history of not meeting financial obligations  and raise a security concern within17
the meaning of Guideline F.  
All of the mitigating conditions under Guideline F have been considered and two deserve
discussion. The two applicable MC are:  
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MC2: [T]he conditions that resulted in the financial problem 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; and
MC 4: [T]he individual initiated a good-faith effort to repay overdue creditors or
otherwise resolve the debts.
First, MC 2 applies because Applicant’s ongoing tax problem is due to an unexpected
business problem. He did not incur the tax problem by frivolous or irresponsible spending on a
credit-card binge, deceptive or illegal financial practices, failure to file income-tax returns or
fraudulent filing of the same, or some other misfeasance or malfeasance. Instead, the facts and
circumstances show that Applicant has a complicated business problem on his hands. He has  acted
responsibly under the circumstances by going through the IRS audit and appealing the audit’s result.
Second, MC 4 applies under a similar rationale. He is taking steps  to resolve the ongoing
tax problem by retaining representation and appealing under the process allowed by law. His actions
are wholly lawful, and they are the actions of a reasonable businessperson in the same or similar
situation. If unsuccessful, Applicant believes he could resolve the tax problem by selling the assets
of his horse business and using the proceeds to repay (R. 52–54). On this point, Applicant testified
that the horses have an average value of $12,000 to $13,000 each. A sale would produce a gross
amount of $312,500 if Applicant sold all 25 horses at an average of $12,500 each. Given these
circumstances, Applicant’s actions are sufficient to qualify as a good-faith effort within the meaning
of Guideline F.  
To sum up under the whole-person concept, this case presents both disqualifying and
mitigating information, which requires thoughtful balancing. First, Applicant is 63 years old and
sufficiently mature to make prudent decisions about his finances, money-management practices, and
horse business. Second, he is in the middle of an ongoing tax dispute. He may or may not prevail.
If he does, the tax liens and tax deficiencies will go away. If not, he will be required to repay the tax
deficiencies and it appears he may have sufficient assets to do so. Third, the evidence shows that
Applicant is not a tax protestor, he is not tax defiant, and he is not engaged in tax evasion or fraud.
Fourth, Applicant has years of honorable military service and retired as a Navy captain. This
circumstance strongly suggests that Applicant has the requisite self-control, good judgment,
reliability, trustworthiness, and ability to protect classified information. And fifth, the potential for
pressure, coercion, exploitation, or duress in a security-clearance context is remote. The chances of
federal or state tax authorities using the ongoing tax dispute as leverage or blackmail material against
Applicant to obtain classified information are approximately zero. Likewise, it is highly improbable
that a third party would first discover and then attempt to use the ongoing tax dispute as leverage
against Applicant. Neither scenario is realistic. 
Finally, this clearance decision should not be construed as addressing the legitimacy,
substance, or merit of Applicant’s tax dispute. It does not. Those matters are beyond the scope and
jurisdiction of this administrative proceeding, which is limited to determining Applicant’s eligibility
for a security clearance. 
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After weighing the record evidence as a whole, Applicant has successfully explained,
extenuated, or mitigated the financial considerations security concern. And Applicant has overcome
the case against him and satisfied his ultimate burden of persuasion to obtain a favorable clearance
decision. Accordingly, Guideline F is decided for Applicant.
FORMAL FINDINGS
SOR ¶ 1–Guideline F: For Applicant
Subparagraphs a–f: For Applicant
DECISION
In light of all the circumstances, it is clearly consistent with the national interest to grant or
continue eligibility for a security clearance for Applicant. Clearance is granted.    
Michael H. Leonard
Administrative Judge