DEPARTMENT OF DEFENSE
         DEFENSE OFFICE OF HEARINGS AND APPEALS
          
            
In the matter of: )
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----------------------------------- )       ISCR Case No. 12-08373
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Applicant for Security Clearance )
Appearances
For Government: Gina L. Marine, Esquire, Department Counsel
For Applicant: Pro se
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 Decision
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WESLEY, Roger C., Administrative Judge:
Based upon a review of the pleadings and exhibits, eligibility for access to classified
information is granted.
History of the Case
On October 17, 2012, the Department of Defense (DOD) issued a Statement of
Reasons (SOR) detailing reasons why DOD adjudicators could not make the preliminary
affirmative determination of eligibility for granting a security clearance, and recommended
referral to an administrative judge to determine whether a security  clearance should be
granted, continued, denied, or revoked. The action was taken under Executive Order
10865, Safeguarding Classified Information within Industry (February 20, 1960), as
amended; DOD Directive 5220.6, Defense Industrial Personnel Security Clearance
Review Program (January 2, 1992), as amended (Directive); and the Adjudicative
Guidelines (AGs) implemented by the DOD on September 1, 2006.
Applicant responded to the SOR on November 23, 2012, and requested a hearing.
The case was assigned to me on March 20, 2013, and was scheduled for hearing on April
15, 2013.  The hearing was convened on that date by video teleconference. At hearing,
the Government’s case consisted of 11 exhibits (GEs 1-11). Applicant relied on one
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witness (himself) and four exhibits. (AEs A-D) The transcript (tr.) was received on April 24,
2013.
Procedural Issues
At the hearing, the Government confirmed its withdrawal of the allegations covered
by subparagraph 1.c of the SOR. (Tr. 35) Applicant interposed no objections to the
withdrawal.
Before the close of the hearing, Applicant requested leave to keep the record open
to permit him to supplement the record with documentation of satisfaction of an IRS tax
lien, payments to creditor 1.b, and character references. For good cause shown, Applicant
was granted seven days to supplement the record.  The Government was afforded seven
days to respond.  Within the time permitted, Applicant documented the release of IRS tax
lien, a bank statement listing payments to creditor 1.b, and a list of character references
and civic contributions. I admitted Applicant’s submissions as AEs E-G. 
Summary of Pleadings
Under Guideline F, Applicant allegedly accumulated three delinquent debts
exceeding $38,000. Under Guideline E, Applicant allegedly falsified his answers to the
security clearance application (e-QIP) he completed in March 2012 by omitting the IRS
lien covered by subparagraph 1.a and the charged-off creditor 1.b consumer debt.
In his response to the SOR, Applicant admitted two of the allegations
(subparagraphs 1.a and 1.b) in part. He denied the IRS lien (subparagraph 1.a) was filed
against him personally and claimed it was a corporate debt caused by the wrongful
withholding of payments by another federal agency. He claimed that payment
arrangements were made with the creditor covered in subparagraph 1.b. Applicant denied
the allegations covered by subparagraph 1.c. He claimed the $3,000 debt alleged in
subparagraph 1.c has been resolved.  Applicant also denied falsifying his e-QIP. He
claimed he answered the question inquiring about his finances with the best information
available to him at the time. 
Findings of Fact
Applicant is a 54-year-old consultant for a defense contractor who seeks a security
clearance. While Applicant is not currently employed, his contractor continues to sponsor
him for a security clearance. (Tr. 60) Jurisdiction is retained. The allegations covered in
the SOR and admitted to by Applicant are adopted as relevant and material findings.
Additional findings follow.
Background
                                  
Applicant married in July 1979 and divorced his spouse in April 2003. (GE 1) He
has no children from this marriage. 
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Applicant earned an associate’s degree from a local community college in March
1978.  (GE 1) He enlisted in the Marine Corps in August 1979. (GE 1) He served 13 years
of active duty and received an honorable discharge in August 1992. (GE 1) 
Applicant’s finances
Applicant founded a small consulting company in 2001 (Company A) that provided
consulting services in voice and electronic communications to businesses and
government agencies. (GE 2; Tr. 104) Applicant incorporated his business in Subchapter
S  form. A Subchapter S corporation is a corporation formed for tax purposes. S
corporations do not pay federal income taxes but pass income and losses through to the
shareholders, much like partnerships do with their individual partners.  Asked for his
understanding of personal liability distinctions between Subchapter S corporations and
conventional corporate forms, Applicant expressed uncertainty. (Tr. 102-103) He
established his company in Subchapter S format based on professional advice. (Tr. 103-
105)   
Applicant’s company last employed employees in June 2011 and last earned a
profit in 2006. (GE 2; Tr. 106-107)  He always filed individual tax returns for himself and
separate returns for his company. (GE 10; Tr. 89-90)
Between April 2001 and February 2011, Applicant worked on a full-time basis for
Company A. (GE 2; Tr. 63-64) He earned little income from the company (primarily draws
for personal expenses), however, and took positions with other employers to sustain
himself. (GE 2; Tr. 63-65) In 2007, Company A (a service-disabled veteran-owned
business) entered into a contractual arrangement with another federal agency to manage
the agency’s voice and electronic communications in his local region. (GEs 2, 11, and 12)
His company contract called for a $500,000 fee for the first year, with a four-year option at
the Government’s election. (GEs 11 and 12) During the first year of the contract, Company
A billed the contracting agency a total of $14,444 for completed work orders. (GE 11) 
When the federal agency failed to compensate Applicant’s consulting firm after the
first year as agreed, Company A did not have enough funds available to pay its
employees and also remit owed payroll taxes to the IRS. (GE 2 and AE E; Tr. 107-108)   It
faced some difficult choices.  Working with the IRS, Applicant was afforded the option by
the IRS of paying the company’s owed payroll taxes to the IRS, or paying the company’s
employees. Applicant and Company A elected to pay the company’s employees, and, as
a result, became personally liable for withheld payroll taxes for tax years 2006 and 2007.
(AE E; Tr. 108-109)  Accrued payroll taxes for tax years 2006 and 2007 approximated
$25,630. When Applicant and Company A did not pay their owed payroll taxes, the IRS
filed a federal tax lien in June 2009 to cover the owed taxes for the 2006 and 2007 tax
years. The lien was filed against Applicant personally and was reported in Applicant’s
credit reports as a personal federal tax lien. (GEs 4, 13, and 14 and AE F) 
In July 2012, Applicant entered into an installment agreement with the IRS. (GE 4;
Tr. 45-46) Under the terms of his agreement, he committed to making $100 monthly
payments. (GE 4)  Earlier, he made a number of installment payments through his
company of approximately $400 a month. (Tr. 50-52) Applicant assures he maintained his
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payments in accordance with the terms of his installment agreement. (Tr. 66-67) His
assurances are not controverted, are credible, and are accepted.
Applicant has since satisfied the federal tax lien with funds received from Company
A’s alternative dispute resolution settlement with the federal agency holding  Company A’s
consulting contract. (AEs D and E; Tr. 69-73)  He and his firm have no further taxes owing
to the IRS, or other debts. (Tr. 92)
Besides the federal tax lien, Applicant personally accrued a delinquent credit card
debt with creditor 1.b in the amount of $10,764.  Applicant opened a joint account with his
ex-spouse in December 1985. (GE 3)  As a part of their divorce settlement, Applicant and
his ex-wife allocated their debts between themselves. Without a documented divorce
decree, precise allocations cannot be made. (Tr. 47) 
Applicant’s wife never satisfied the creditor 1.b debt, and Applicant has accepted
responsibility for its payment. In 2012, he completed a settlement arrangement with
creditor 1.b that called for monthly payments of $100. (GE 5 and AE F; Tr. 48-49, 90) With
his post-hearing submission, he documented ten months worth of $100 monthly payments
since February 2012.  (AE F)
For the three months Applicant was employed by his sponsoring defense contractor
(March 2012 to June 2012) Applicant earned income based on his set annual salary of
$81,000. (GE 9; Tr. 59-61) During this three-month period of employment, he netted
$4,336 a month from his defense employer and earned nothing from his part-time work
with Company A. (GEs 8 and 9; Tr. 62-63) 
Applicant reported monthly expenses of $752 and debt payments of $2,378 for the
three-month period ending June 2012, leaving him a net monthly remainder of $1,205.
(GE 8) Although he no longer worked for his defense contractor after June 2012, he
continued to receive paychecks from the firm through September 2012. (Tr. 84-85)
Applicant’s credit reports reveal he has no other delinquent accounts. (GEs 13 and 14)      
  
Applicant’s e-QIP omissions    
Asked to complete an e-QIP in March 2012, Applicant omitted (a) the IRS tax lien
filed against him personally in June 2009 and (b) a credit card debt. Applicant assured he
believed the IRS lien belonged to the Subchapter S firm he founded and operated and not
to him personally. While he was manifestly mistaken in treating the tax lien as a business
lien with no personal liability, his mistake is credible, and did not entail a deliberate
omission.  
So, too, Applicant’s explanations for omitting his credit card debt (creditor 1.b) was
based on his credible belief that the debt was allocated to his ex-spouse under their
divorce settlement. (Tr. 91) Whether his assumption is correct or not cannot be
corroborated without documentation of his divorce agreement. Based on his testimony
and his showing of some language-related confusion, his explanations are plausible and
credible enough to avert inferences of intentional omission.   
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Endorsements
Applicant furnished a list of character references. (AE G) His list includes high-level
federal and state office holders and community leaders. Their assessments of Applicant
cannot be gauged, however, without their written or oral accounts. His post-hearing
submission also included a lengthy list of his civic and community associations. (AE G)  
Without more details of his community activities, it is difficult to gauge the depth
and breadth of his listed activities. His activities are entitled to consideration, though, when
making an overall whole-person evaluation of Applicant’s judgment, reliability and
trustworthiness.
Policies
The AGs list guidelines to be used by administrative judges in the decision-making
process covering DOHA cases. These guidelines take into account factors that could
create a potential conflict of interest for the individual applicant, as well as considerations
that could affect the individual’s reliability, trustworthiness, and ability to protect classified
information. These guidelines include "[c]onditions that could raise a security concern and
may be disqualifying” (disqualifying conditions), if any, and many of the "[c]onditions that
could mitigate security concerns.” These guidelines must be considered before deciding
whether or not a security clearance should be granted, continued, or denied. The
guidelines do not require administrative judges to place exclusive reliance on the
enumerated disqualifying and mitigating conditions in the guidelines in arriving at a
decision. Each of the guidelines is to be evaluated in the context of the whole person in
accordance with AG ¶ 2(c). 
In addition to the relevant AGs, administrative judges must take into account the
pertinent considerations for assessing extenuation and mitigation set forth in AG ¶ 2(a) of
the revised AGs, which are intended to assist the judges in reaching a fair and impartial
commonsense decision based upon a careful consideration of the pertinent guidelines
within the context of the whole person. The adjudicative process is designed to examine a
sufficient period of an applicant’s life to enable predictive judgments to be made about
whether the applicant is an acceptable security risk. 
When evaluating an applicant’s conduct, the relevant guidelines are to be
considered together with the following AG ¶ 2(a) factors: (1) the nature, extent, and
seriousness of the conduct; (2) the circumstances surrounding the conduct, to include
knowledgeable participation; (3) the frequency and recency of the conduct; (4) the
individual’s age and maturity at the time of the conduct; (5) the extent to which
participation is voluntary; (6) the presence or absence of rehabilitation and other
permanent behavioral chances; (7) the motivation for the conduct; (8) the potential for
pressure, coercion, exploitation, or duress; and (9) the likelihood of continuation or
recurrence.
Viewing the issues raised and evidence as a whole, the following individual
guidelines are pertinent in this case:
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Financial Considerations
The Concern: 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.  Compulsive gambling is
a concern as it may lead to financial crimes including espionage.  Affluence
that cannot be explained by known sources of income is also a security
concern.  It may indicate proceeds from financially profitable criminal acts.
(AG, ¶ 18)
Burden of Proof
By virtue of the principles and policies framed by the AGs, a decision to grant or
continue an applicant's security clearance may be made only upon a threshold finding that
to do so is clearly consistent with the national interest.  Because the Directive requires
administrative judges to make a commonsense appraisal of the evidence accumulated in
the record, the ultimate determination of an applicant's eligibility for a security clearance
depends, in large part, on the relevance and materiality of that evidence. See United
States, v. Gaudin, 515 U.S. 506, 509-511 (1995).  As with all adversarial proceedings, the
judge may draw only those inferences which have a reasonable and logical basis from the
evidence of record.  Conversely, the judge cannot draw factual inferences that are
grounded on speculation or conjecture.
The Government's initial burden is twofold: (1) it must prove by substantial evidence
any controverted facts alleged in the SOR, and (2) it must demonstrate that the facts
proven have a material bearing to the applicant's eligibility to obtain or maintain a security
clearance. The required materiality showing, however, does not require the Government to
affirmatively demonstrate that the applicant has actually mishandled or abused classified
information before it can deny or revoke a security clearance. Rather, the judge must
consider and weigh the cognizable risks that an applicant may deliberately or inadvertently
fail to safeguard classified information.
Once the Government meets its initial burden of proof of establishing admitted or
controverted facts, the evidentiary burden shifts to the applicant for the purpose of
establishing his or her security worthiness through evidence of refutation, extenuation, or
mitigation.  Based on the requirement of  Exec. Or. 10865 that all security clearances be
clearly consistent with the national interest, the applicant has the ultimate burden of
demonstrating his or her clearance eligibility. “[S]ecurity-clearance determinations should
err, if they must, on the side of denials.” See Department of the Navy v. Egan, 484 U.S.
518, 531 (1988). 
Analysis  
Security concerns are raised in connection with Applicant’s accumulation of a
federal tax lien linked to unpaid payroll taxes and a delinquent credit card debt. His
accumulated debts and past failure to discharge them raise some potential security
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concerns about his judgment, reliability, and trustworthiness in managing his finances. His
actions warrant the application of two of the disqualifying conditions (DC) of the Guidelines:
DC ¶ 19(a), “inability or unwillingness to satisfy debts,” and DC ¶ 19(c), “a history of not
meeting financial obligations.”
Holding a security clearance involves the exercise of important fiducial
responsibilities, among which is the expectancy of consistent trust and candor.  Financial
stability in a person cleared to access classified information is required precisely to inspire
trust and confidence in the holder of the clearance. While the principal concern of a
clearance holder’s demonstrated financial difficulties is vulnerability to coercion and
influence, judgment and trust concerns are implicit in financial cases.
Applicant’s default in his payments of his company’s payroll taxes for tax years 2006
and 2007 resulted in the IRS’s filing of a federal tax lien in 2009 to cover the taxes pending
Applicant’s resolution of his contractual dispute with another federal agency. With the
withheld payroll taxes, Applicant used the funds to pay his employees while he pressed for
a favorable resolution with the agency holding up his firm’s due payments.  Once the
agency settled with Applicant and his firm, Applicant promptly discharged the tax liability to
the IRS.  The IRS, in turn, released its tax lien. The only other delinquent debt alleged to
be unresolved is Applicant’s credit card debt owed to creditor 1.b. Applicant entered a
payment agreement with this creditor in 2012 and documented ten monthly payments to
this creditor in accordance with the terms of his payment arrangement. Applicant’s
circumstances and repayment efforts merit application of two of the mitigating conditions
for financial considerations: MC ¶ 20(a), “the behavior happened so long ago, was so
infrequent, or occurred under circumstances that it is unlikely to recur and does not cast
doubt on the individual’s reliability, trustworthiness, or good judgment;” and MC ¶ 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.”
From a whole-person standpoint, the evidence is substantial that an unfortunate
dispute between Applicant’s firm and the federal agency responsible for fulfilling its
contractual commitments to his firm prevented him from meeting his payroll tax obligations
with the IRS and still meet his payroll responsibilities with his employees. Applicant has
since satisfied his federal tax liabilities for his consulting firm and shows good progress in
meeting his monthly payment responsibilities with creditor 1.b. Applicant’s finances are
now stabilized with no other tax debts due the IRS or outstanding consumer debts in need
of addressing. Overall, Applicant’s stabilization of his finances is sufficient to meet
mitigation requirements imposed by the AGs governing his finances.  
Personal conduct concerns
Applicant is credited with mistaken omissions of his IRS tax lien and his credit card
debt with creditor 1.b He omitted his IRS lien in the mistaken belief the debt was his
company’s debt, and not his own.  Similarly, he omitted his delinquent credit card debt out
of the mistaken belief the debt belonged to his ex-wife by virtue of their divorce agreement.
In both instances, Applicant’s omissions are attributable to credible, although mistaken,
understandings, and were not due to any intentional omissions. The allegation covered by
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Guideline E is, accordingly, unsubstantiated. Favorable conclusions are warranted with
respect to subparagraph 2.a. 
Formal Findings
In reviewing the allegations of the SOR and ensuing conclusions reached in the
context of the findings of fact, conclusions, conditions, and the factors listed above, I make
the following formal findings:
GUIDELINE F (FINANCIAL CONSIDERATIONS):  FOR APPLICANT
   
Subparas 1.a and 1.b:       For Applicant
Subpara. 1.c:       Withdrawn
GUIDELINE E (PERSONAL CONDUCT):      FOR APPLICANT
Subpara. 2.a:      For Applicant 
Conclusions
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 Applicant’s security clearance.
Clearance is granted.
                                          
Roger C. Wesley
Administrative Judge 
                                        
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