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                           DEPARTMENT OF DEFENSE 
         DEFENSE OFFICE OF HEARINGS AND APPEALS 
           
             
 
In the matter of: ) 
 ) 
  )  ISCR Case No. 10-10859 
  ) 
 ) 
Applicant for Security Clearance ) 
 
 
Appearances 
 
For Government: Julie R. Mendez, Esq., Department Counsel 
For Applicant: Pro se 
 
 
 
__________ 
 
Decision 
__________ 
 
 
RIVERA, Juan J., Administrative Judge: 
 
Applicant failed to pay federal payroll taxes and acquired significant debt. His 
wife’s illness, divorce, and small earnings contributed to his inability to pay his debts. 
Since 2008, he has taken action to resolve his debts, established a record of financial 
responsibility, and demonstrated that his financial problems are being resolved. He now 
understands what is required of him to be eligible for a security clearance. Clearance is 
granted. 
 
Statement of the Case 
 
Applicant submitted a security clearance application (SCA) on May 5, 2010. After 
reviewing the results of the ensuing background investigation, adjudicators for the 
Defense Office of Hearings and Appeals (DOHA) were unable to make a preliminary 
affirmative finding1
                                            
1 Required by Executive Order 10865, Safeguarding Classified Information Within Industry, dated 
February 20, 1960, as amended; and Department of Defense (DOD) Directive 5220.6, Defense Industrial 
Personnel Security Clearance Review Program (Directive), dated January 2, 1992, as revised. 
 that it is clearly consistent with the national interest to grant 
 
 
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Applicant’s request for a security clearance. On August 2, 2011, DOHA issued Applicant 
a Statement of Reasons (SOR) alleging security concerns under Guideline F (Financial 
Considerations) of the adjudicative guidelines (AG).2
 
  
Applicant answered the SOR on September 8, 2011. He requested a hearing 
before an administrative judge. The case was assigned to me on October 13, 2011. 
DOHA issued a notice of hearing on October 25, 2011, convening a hearing on 
November 15, 2011. At the hearing, the Government offered exhibits (GE) 1 through 10. 
Applicant testified, and offered exhibits (AE) 1 through 11. AE 11 was received post-
hearing. It includes the Government’s cover letter indicating it did not have any objection 
to me considering Applicant’s post-hearing submission, an extract of Chapter 7 of the 
Bankruptcy Code, and an extract of the Internal Revenue Manual. All exhibits were 
received without objection. DOHA received the transcript of the hearing (Tr.) on 
November 23, 2011.  
 
Findings of Fact 
 
Applicant denied all SOR allegations. After a thorough review of the evidence of 
record, and having observed his demeanor and considered his testimony, I make the 
following findings of fact. 
 
Applicant is a 51-year-old program manager employed by a defense contractor. 
He attended high school, but his not graduate because his father died and he had to 
start working. Applicant married his fist wife in 1979 and they divorced in 1982. He 
married his second wife in 1984, and they divorced in 2008. He has four adult children 
of this marriage. He married his current wife in December 2008. He has three step-
children of this marriage, ages 22, 17, and 15. The two younger children reside with 
Applicant, and he provides financial assistance to them. Applicant’s spouse is a nurse. 
She earns approximately $42,000 a year, and she contributes to the household 
finances. 
 
Between 1989 and 2000, Applicant established two companies. The first 
company failed in 1998, and the second company failed in 2000. He has worked for his 
employer, a government contractor, since December 2001.  
 
In his answers to the financial questions in his May 2010 SCA, Applicant 
disclosed that during the last seven years he had property repossessed, federal and 
state liens filed against him, defaulted on loans, and debts charged off and turned over 
to collection agencies. Applicant’s background investigation addressed his financial and 
tax problems. The investigation revealed the nine delinquent debts alleged in the SOR, 
which are established by the record evidence and Applicant’s testimony.  
                                            
2 Adjudication of this case is controlled by the AGs, implemented by the DOD on September 1, 
2006. 
 
 
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The $4,074 debt alleged in SOR ¶ 1.a resulted from a civil penalty, plus interest, 
imposed by the IRS against Applicant for deficiencies during tax year 2000. It is not 
clear from the evidence when the IRS notified Applicant of the assessment against him. 
However, the IRS filed a lien against Applicant in April 2011. Applicant’s IRS documents 
establish that he started making payments on this debt in July 2010. Applicant paid the 
debt and the lien was released in September 2011. (AE 11) 
 
Applicant and his wife acquired the $15,733 debt to the IRS alleged in SOR ¶ 1.b 
when she accepted an inheritance in 2009. Apparently, she miscalculated the federal 
and state estate tax owed. Applicant established a payment plan in December 2010. He 
has been paying $297 a month since then. Additionally, the IRS is retaining Applicant’s 
income tax returns and applying it to the debt. 
 
The debts alleged in SOR ¶¶ 1.c through 1.e are the result of Applicant’s failure 
to pay payroll taxes for his two companies’ employees during tax years 1995, 1999, and 
2000. He acquired approximately $120,000 in debt to the Internal Revenue Service 
(IRS) (SOR ¶¶ 1.a and 1.c through 1.e). Applicant explained that when his first company 
began to fail (between 1995 and 1998), he used the payroll tax money to keep the 
business going. He established the second company from 1998 until 2000. He averred 
that during this period, unbeknown to him, his business manager embezzled the money 
and did not pay the payroll taxes. (See AE 9) 
 
The IRS started its collection efforts in 2000, applying Applicant’s yearly income 
tax returns to the debt. Additionally, the IRS filed liens against Applicant’s properties. 
One of Applicant’s real estate properties was foreclosed and sold in auction by the IRS 
in 2007-2008. The proceeds of the sale, approximately $30,000, were applied to 
Applicant’s debt. In 2008, Applicant started paying $125 a month to the IRS. He 
increased his monthly payment to $300 a month in 2011. As a result of the above IRS’s 
collection efforts and Applicant’s payment plan, he paid in full the debts alleged in SOR 
¶¶ 1.a and 1.c through 1.e. All the IRS liens filed against Applicant concerning his failure 
to pay the payroll taxes were released in September 2011. (AE 9) 
 
Concerning the debt alleged in SOR ¶ 1.f, Applicant explained that he purchased 
a house in 1998. He was renting the home, but the tenants vacated the property in 
2005-2006. Because of his financial problems, Applicant was unable to pay the 
mortgage and the home owners’ association (HOA) dues. The HOA obtained multiple 
judgments against Applicant for the HOA assessments, which are alleged in SOR ¶ 1.f. 
The bank foreclosed the property for lack of payment, and sold it in auction. Because 
the IRS had filed liens against the property, the IRS invalidated the bank’s foreclosure 
and the sale of the property. The IRS then foreclosed on the property and sold it. Part of 
the proceeds of the sale of the home was applied to Applicant’s IRS debs. 
 
Applicant and the HOA believe that Applicant’s responsibility for the past due 
HOA assessments terminated when the property was foreclosed and sold. Applicant is 
disputing this debt. The HOA believes that the judgments were “wiped out” through the 
foreclosure and that payment is not necessary. (GE 7) Notwithstanding, since April 
 
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2009, Applicant has been making good-faith payments of $10 a month to the HOA, just 
in case the foreclosure did not release him of financial responsibility. 
 
SOR ¶ 1.g alleges a judgment filed against Applicant for a delinquent credit card 
debt of $2,981. Applicant admitted this is his debt. In February 2009, he established a 
payment plan of $105 a month. He has been consistently making his payments. As of 
October 2011, his balance was $991. 
 
SOR ¶ 1.h alleges a $22,000 judgment filed against Applicant in 2001 for legal 
services provided to one of his failed companies. Applicant testified that he believes he 
was discharged of the judgment when he and his company filed for Chapter 7 
bankruptcy protection in 1997. He presented no documentary evidence to corroborate 
his claims. He averred that he received no collection notices after he filed for bankruptcy 
protection. He became aware of the judgment as a result of the security clearance 
process. Applicant promised to pay this debt if it was not discharged through the 
bankruptcy process. 
 
SOR ¶ 1.i alleges an $8,600 tax debt owed to Applicant’s state of residency. 
Applicant explained that he and his wife acquired this debt in 2009, when she accepted 
his father’s inheritance. Applicant started a $300 a month payment plan in January 
2011. As of his hearing date, he owed $4,483. (AE 7) 
 
Applicant was candid and forthcoming during his hearing. He readily accepted 
responsibility for his failure to pay his payroll taxes. He acknowledged that he was 
negligent in the handling of his payroll taxes. Applicant explained, not as an excuse for 
his questionable behavior, but to place his behavior in the context of his personal and 
financial circumstances, that at time he failed to pay the payroll taxes, his company was 
in financial trouble. He used the payroll taxes to keep the business going. He was 
planning to repay the payroll taxes when his financial situation improved.  
 
Applicant’s financial problems were exacerbated by his second wife’s prolong 
illness and the resulting medical expenses. Because of her illness, she was unable to 
work. Applicant was the sole household provider. Additionally, around 2008, Applicant 
went through a contentious divorce with his second wife, prompted in part, because of 
his poor economic situation. After the divorce, Applicant was required to pay alimony 
and part of his ex-wife’s medical expenses. 
 
Applicant testified that he was not able to address all his delinquent debts sooner 
because of his limited earnings. Applicant’s current yearly salary is $122,000. His 
current wife is employed and she is contributes to the household finances. With her 
help, he was able to establish payment plans in 2008 with the IRS and other creditors. 
He intends to pay all his debts one at a time. 
 
Applicant has not acquired any large debts since 2008. He carries one consumer 
credit card because he needs to re-establish his credit rating. He has no personal loans 
or any other delinquent accounts, except for those listed in the SOR. His wife owns the 
 
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home where they live, and he drives a 2003 car. Applicant and his wife follow a budget 
and they limit their discretionary expenses to pay their delinquent debts. He has a 
monthly net remaining income of $1,200 after paying all his delinquent debts. He uses 
his remaining income to provide financial assistance to his stepchildren as they are 
attending college. He has approximately $8,000 in a savings account. 
 
Applicant credibly expressed remorse for his negligence in handling his payroll 
taxes. He understands his legal responsibilities. He also is aware of the security 
clearance consequences of his actions, and what is expected of him to be eligible for a 
security clearance. Applicant’s direct supervisor considers Applicant to be a valuable 
asset with excellent skills and experience. He has been instrumental in achieving 
customer satisfaction from the government agency they serve. Overall, Applicant is 
considered to be dedicated to accomplishing the company’s mission and demonstrates 
excellent work ethic, loyalty, and integrity. 
 
Policies 
 
The Secretary of Defense may grant eligibility for access to classified information 
“only upon a finding that it is clearly consistent with the national interest to do so.” Exec. 
Or. 10865, Safeguarding Classified Information within Industry § 2 (Feb. 20, 1960), as 
amended. The U.S. Supreme Court has recognized the substantial discretion of the 
Executive Branch in regulating access to information pertaining to national security, 
emphasizing that “no one has a ‘right’ to a security clearance.” Department of the Navy 
v. Egan, 484 U.S. 518, 528 (1988). 
 
Eligibility for a security clearance is predicated upon the applicant meeting the 
criteria contained in the adjudicative guidelines. These AGs are not inflexible rules of 
law. Instead, recognizing the complexities of human behavior, these guidelines are 
applied in conjunction with an evaluation of the whole person. An administrative judge’s 
adjudicative goal is a fair, impartial, and commonsense decision. An administrative 
judge must consider all available, reliable information about the person, past and 
present, favorable and unfavorable to reach his decision.  
 
The Government reposes a high degree of trust and confidence in persons with 
access to classified information. This relationship transcends normal duty hours and 
endures throughout off-duty hours. Decisions include, by necessity, consideration of the 
possible risk that the applicant may deliberately or inadvertently fail to safeguard 
classified information. Such decisions entail a certain degree of legally permissible 
extrapolation of potential, rather than actual, risk of compromise of classified 
information. Clearance decisions must be “in terms of the national interest and shall in 
no sense be a determination as to the loyalty of the applicant concerned.”  See Exec. 
Or. 10865 § 7. See also Executive Order 12968 (Aug. 2, 1995), Section 3. Thus, a 
clearance decision is merely an indication that the Applicant has or has not met the 
strict guidelines the President and the Secretary of Defense have established for issuing 
a clearance. 
 
 
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Initially, the Government must establish, by substantial evidence, conditions in 
the personal or professional history of the applicant that may disqualify the applicant 
from being eligible for access to classified information. The Government has the burden 
of establishing controverted facts alleged in the SOR. See Egan, 484 U.S. at 531.  
“Substantial evidence” is “more than a scintilla but less than a preponderance.” See v. 
Washington Metro. Area Transit Auth., 36 F.3d 375, 380 (4th Cir. 1994). The guidelines 
presume a nexus or rational connection between proven conduct under any of the 
criteria listed and an applicant’s security suitability. See ISCR Case No. 95-0611 at 2 
(App. Bd. May 2, 1996).      
 
Once the Government establishes a disqualifying condition by substantial 
evidence, the burden shifts to the applicant to rebut, explain, extenuate, or mitigate the 
facts. Directive ¶ E3.1.15. An applicant “has the ultimate burden of demonstrating that it 
is clearly consistent with the national interest to grant or continue [his or her] security 
clearance.” ISCR Case No. 01-20700 at 3 (App. Bd. Dec. 19, 2002). The burden of 
disproving a mitigating condition never shifts to the Government. See ISCR Case No. 
02-31154 at 5 (App. Bd. Sep. 22, 2005). “[S]ecurity clearance determinations should err, 
if they must, on the side of denials.” Egan, 484 U.S. at 531; see AG ¶ 2(b).   
 
Analysis 
 
Guideline F, Financial Considerations 
 
 Under Guideline F, the security concern is that 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 financially overextended is at risk of having 
to engage in illegal acts to generate funds. AG ¶ 18. 
 
Applicant failed to pay federal payroll taxes during tax years 1995, 1999, and 
2000. He acquired approximately $120,000 in debt to the IRS. Additionally, he and his 
wife owe the IRS and his state approximately $24,000 for unpaid estate taxes. He also 
acquired three debts that were delinquent for several years. He has established 
payment plans with the IRS, his state, and all of his creditors, except one. AG ¶ 19(a): 
“inability or unwillingness to satisfy debts”; AG ¶ 19(c): “a history of not meeting financial 
obligations”; and AG ¶ 19(d): “deceptive or illegal financial practices such as 
embezzlement, employee theft, check fraud, income tax evasion, expense account 
fraud, filing deceptive loan statements, and other intentional financial breaches of trust” 
apply.  
 
 AG ¶ 20 provides five conditions that could mitigate the financial considerations 
security concerns: 
 
(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 
 
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doubt on the individual's current reliability, trustworthiness, or good 
judgment; 
 
(b) the 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; 
 
(c) the person has received or is receiving counseling for the problem 
and/or there are clear indications that the problem is being resolved or is 
under control;  
 
(d) the individual initiated a good-faith effort to repay overdue creditors or 
otherwise resolve debts; and  
 
(e) the individual has a reasonable basis to dispute the legitimacy of the 
past-due debt which is the cause of the problem and provides 
documented proof to substantiate the basis of his dispute or provides 
evidence of actions to resolve the issue. 
 
Applicant’s good-faith efforts to resolve his delinquent obligations started in 2008. 
He paid the four alleged IRS debts resulting from his failure to pay the payroll taxes. 
(SOR ¶¶ 1.a and 1.c through 1.e) He has been making consecutive payments to the 
IRS and his state for the estate taxes owed. (SOR ¶¶ 1.b and 1.i) And, he has been 
making consecutive payments to two other creditors. (SOR ¶¶ 1.f and 1.g) Of the 
alleged debts, only SOR ¶ 1.h is unresolved. Applicant disputed that debt because he 
believes it was discharged through one of his bankruptcy filings. However, he failed to 
present documentary evidence to support his claim. 
 
 AG ¶ 20(a) does not apply. Applicant’s financial problems are recent. 
Considering the number of debts, how he acquired his delinquent debts, and the period 
they were delinquent, his financial problems cannot be considered infrequent. His 
payroll tax debts were not acquired under extraordinary circumstances.  
 
 AG ¶ 20(b) applies, but does not fully mitigate the financial considerations 
concerns. Applicant’s second wife’s prolonged illness, his divorce, his two businesses’ 
failure, his low earnings, and the two tax debts acquired as a result of his wife’s 
inheritance are circumstances beyond his control that contributed to his inability to 
resolve his financial problems. It does not fully mitigate the financial concerns because 
Applicant was negligent and financially irresponsible when he failed to pay the payroll 
taxes. He also should have been more diligent in addressing his other financial 
obligations. 
 
 AG ¶¶ 20(c) and (d) apply. Since 2008, Applicant has been making good-faith 
efforts to pay all of his delinquent financial obligations, except one. He established 
payment plans and has been making his payments as agreed. Although he did not 
 
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present evidence of financial counseling, he and his wife have been following a budget 
and implementing financial lifestyle changes to reduce their expenses. He has not 
acquired additional debts or loans. His monthly net remainder and savings account 
demonstrate he is not financially overextended. He established a realistic plan to pay 
his debts and he has been paying his debts since 2008. Applicant intends to pay all of 
his legal obligations.  
 
 AG ¶ 20(e) applies to the debt alleged in SOR ¶ 1.f. Applicant is disputing that 
debt, and the creditor agrees with his position. Furthermore, he is making small 
payments on that debt just in the event he loses his dispute.  Applicant claimed that the 
debt alleged in SOR ¶ 1.h was discharged either through his company’s or his personal 
Chapter 7 bankruptcy filing. He failed to present documentary evidence to support his 
claim. The record evidence shows the judgment is outstanding. Applicant promised to 
pay this debt, if he is legally liable, after he pays his other delinquent obligations. 
Considering his efforts to pay his delinquent debts since 2008, Applicant’s promise to 
pay this debt is credible. AG ¶ 20(f) is not pertinent to the facts in this case. 
 
Whole-Person Concept 
 
 I considered the potentially disqualifying and mitigating conditions in light of all 
the facts and circumstances surrounding this case, and under the whole-person 
concept. AG ¶ 2(c). I have incorporated in my whole-person analysis my comments on 
the analysis of Guideline F.  
 
 Applicant demonstrated financial irresponsibility, lack of judgment, and an 
unwillingness to abide by rules and regulations when he failed to pay his payroll taxes. 
He also should have been more diligent in his efforts to resolve his delinquent financial 
obligations. Notwithstanding, Applicant’s failure to promptly address his financial 
problems could be attributed, in part, to circumstances beyond his control. After 
Applicant remarried in 2008, his financial situation improved. With his wife’s financial 
assistance, Applicant started to resolve his financial problems and he is making 
significant progress. He resolved (he paid or is current on his payment plans) all of his 
delinquent debts, except one.  
 
Considering the record as a whole, I find that his actions since 2008 mitigate the 
financial considerations security concerns. He initiated good-faith payments on his debt 
and established payment plans. He has been consistently complying with his payment 
plans. He has established a track record of financial responsibility, demonstrated that 
his financial problems will be resolved in the foreseeable future, and that they are 
unlikely to recur. 
 
Applicant has matured as a result of his previous financial mistakes and business 
failures. He now has a stable, important position that provides him and his family with a 
substantial income. He is remorseful about his past questionable behavior. Moreover, 
through his remediation actions since 200, he has demonstrated that he has learned his 
 
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lesson. He now understands what is required of him to be eligible for a security 
clearance. He mitigated the security concerns raised under financial considerations. 
 
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:    FOR APPLICANT 
 
 Subparagraphs 1.a – 1.i:     For Applicant 
 
Conclusion 
 
In light of all the circumstances presented by the record in this case, it is clearly 
consistent with the national interest to grant eligibility for a security clearance to 
Applicant. Clearance is granted. 
 
 
 
____________________________ 
JUAN J. RIVERA 
Administrative Judge