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                        DEPARTMENT OF DEFENSE
         DEFENSE OFFICE OF HEARINGS AND APPEALS
          
            
In the matter of: )
)
)     ISCR Case No. 14-06754
)
)
Applicant for Security Clearance )
Appearances
For Government: Rhett E. Petcher,  Esq., Department Counsel
For Applicant: Alan V. Edmunds, Esq.
                                                                            
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Decision
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LYNCH, Noreen A., Administrative Judge:
On May 20, 2015, the Department of Defense  (DOD) issued a Statement of
Reasons (SOR) listing security concerns arising under Guideline F (Financial
Considerations). The action was taken under Executive Order 10865, Safeguarding
Classified Information within Industry (February 20, 1960), as amended; Department of
Defense (DoD) Directive 5220.6, Defense Industrial Personnel Security Clearance
Review Program (January 2, 1992), as amended (Directive); and the adjudicative
guidelines (AG), implemented in September 2006. 
Applicant timely answered the SOR and requested a hearing before an
administrative judge. The case was assigned to me on October 28, 2015. A notice of
hearing was issued on December 8, 2015, scheduling the case for January 14, 2016.
Government Exhibits (GX) 1-3 were admitted into evidence without objection. Applicant
testified, and presented documents (AX A-H) for the record. The transcript was received
on January 19, 2016. Based on a review of the pleadings, testimony, and exhibits,
eligibility for access to classified information is granted.
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Findings of Fact
In her answer to the SOR, Applicant admitted the factual allegation of the SOR
under Guideline F, and provided additional explanations.
Applicant is 38 years old. She is married and has two children. She is the
managing director of a company that is seeking to do business as a federal contractor.
(Tr. 17) She received her undergraduate degree in 1999, and obtained a Master of
Business Administration in 2008. (AX E and F) Applicant has been with her current
employer since 2008. This is her first request for a security clearance. (GX 1) However,
Applicant stated that she was granted a public trust position. (Tr. 31)
The  SOR contains one allegation for failing to file federal and state tax returns
for tax years 2010, 2011, and 2012, as required. Applicant disclosed this information on
her security clearance application. (GX 1)
Applicant explained that she had requested extensions for the tax returns each
year, but a complication arose as the tax filings were joint with her husband. The
personal and business tax returns were joint due to the structure of their company as
an LLC. She and her husband paid an estimated balance due before the tax deadline.
She and her husband notified the IRS each year of the filing status. They sought
assistance for the completion of the Federal and state forms.
As to the allegation in SOR 1.a, Applicant and her husband filed the federal and
state tax returns in 2014. (AX A-A1) The taxes have been paid. A delay occurred due to
the accountant not providing certain business documents in a timely manner. Although
the accountant had worked for the company for about two years in 2010, they did not
advise Applicant or her husband that the structure of the company should not be an
LLC, but rather an S corporation so that the personal tax returns could be filed
separately from the business tax returns. Applicant and her husband kept the IRS
aware of the issue that they were having with the accountant. The tax returns for the
years in question were filed in 2014.
Applicant’s husband, who is the owner of the company, testified at the hearing
that he chose this accounting company believing that they were accurate and reliable.
However, he learned that they were not providing the best advice. The personal tax
returns could not be separated from the business tax returns due to the structure of the
company. Due to the complexity of the business tax returns, it took a period of time for
a new accountant to analyze the files and prepare the returns. They did not file
quarterly payments because they were advised that the business income was below the
threshold income. (Tr. 55)
Applicant’s husband changed accounting firms in 2012, and had the company
restructured so that the personal and business tax returns no longer have to be
consolidated. (Tr. 53) Applicant took a course in budgeting and financial issues.
 See also ISCR Case No. 94-1075 at 3-4 (App. Bd. Aug. 10, 1995).      1
 Department of the Navy v. Egan, 484 U.S. 518, 531 (1988).      2
 ISCR Case No. 93-1390 at 7-8 (App. Bd. Jan. 27, 1995).      3
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Policies
When evaluating an applicant’s suitability for a security clearance, an
administrative judge must consider the adjudicative guidelines (AG). In addition to brief
introductory explanations for each guideline, the adjudicative guidelines list potentially
disqualifying conditions and mitigating conditions. These guidelines are not inflexible
rules of law. Instead, recognizing the complexities of human behavior, they are applied
in conjunction with the factors listed in the adjudicative process. An administrative
judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision.
Under AG ¶ 2(c), this process is a conscientious scrutiny of a number of variables
known as the “whole-person concept.” An administrative judge must consider all
available, reliable information about the person, past and present, favorable and
unfavorable, in making a decision.
The protection of the national security is the paramount consideration. AG ¶ 2(b)
requires that “[a]ny doubt concerning personnel being considered for access to
classified information will be resolved in favor of national security.” In reaching this
decision, I have drawn only those conclusions that are reasonable, logical, and based
on the evidence contained in the record. 
The U.S. Government must present evidence to establish controverted facts
alleged in the SOR. An applicant is responsible for presenting “witnesses and other
evidence to rebut, explain, extenuate, or mitigate facts admitted by applicant or proven
by Department Counsel. . . .”  The burden of proof is something less than a1
preponderance of evidence.  The ultimate burden of persuasion is on the applicant.  2 3
A person seeking access to classified information enters into a fiduciary
relationship with the Government based on trust and confidence. This relationship
transcends normal duty hours and endures throughout off-duty hours. The Government
reposes a high degree of trust and confidence in individuals to whom it grants access to
classified information. Decisions include, by necessity, consideration of the possible risk
the applicant may deliberately or inadvertently fail to protect classified information. Such
decisions entail a certain degree of legally permissible extrapolation of potential, rather
than actual, risk of compromise of classified information.
 
Section 7 of Executive Order 10865 provides that decisions shall be “in terms of
the national interest and shall in no sense be a determination as to the loyalty of the
 See also EO 12968, Section 3.1(b) (listing multiple prerequisites for access to classified or sensitive      4
information), and EO 10865 § 7.
 ISCR Case No. 93-1390 at 7-8 (App. Bd. Jan. 27, 1995).      5
 Id.      6
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applicant concerned.”  “The clearly consistent standard indicates that security clearance4
determinations should err, if they must, on the side of denials.”  Any reasonable doubt5
about whether an applicant should be allowed access to sensitive information must be
resolved in favor of protecting such information.  The decision to deny an individual a6
security clearance does not necessarily reflect badly on an applicant’s character. It is
merely an indication that the applicant has not met the strict guidelines the President
and the Secretary of Defense established for issuing a clearance.
Analysis
Guideline F, Financial Considerations
The security concern for financial considerations is set out in AG ¶ 18:
Failure or an 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.” It also states that “an individual who is
financially overextended is at risk of having to engage in illegal acts to
generate funds.
Applicant failed to timely file her federal and state tax returns for tax years 2010,
2011, and 2012. Consequently, Financial Considerations Disqualifying Conditions (FC
DC) AG ¶ 19(a) (inability or unwillingness to satisfy debts), FC DC AG ¶ 19(c) (a history
of not meeting financial obligations), and FC DC AG ¶ 19(g) (failure to file annual
Federal, state, or local income tax returns as required or fraudulent filing of the same)
apply. With such conditions raised, it is left to Applicant to overcome the case against
her and mitigate security concerns.  
Applicant cites to a problem with the first accountant who was preparing the
returns. Upon his advice they were structured as an LLC and the personal tax returns
could not be filed until the business tax returns were completed. They had to be
consolidated. In 2010, the accountant did not have the returns ready despite the time
extension. Applicant and her husband notified the IRS and paid the tax. They changed
accountants so that the problem would not recur. Consequently, Financial
Considerations Mitigating Condition (FC MC) AG ¶ 20(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 doubt on the individual’s current reliability, trustworthiness, or
good judgment) applies.
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Financial Considerations Mitigating Condition (FC MC) AG ¶ 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)
applies. As noted above, Applicant could not file the joint personal tax returns until the
business returns for her husband’s company were completed. She filed for an
extension of time, but the preparer still did not have the business return complete. She
notified the IRS and paid the tax. She could not do anything else at that point. Her
husband fired the accountant and hired a new company to do the taxes, but it took time
for them to review files from the previous accountant. She acted responsibly by
maintaining contact with the IRS. The tax returns were filed by 2014.
FC MC AG ¶ 20(d), (the individual initiated a good-faith effort to repay overdue
creditors or otherwise resolve debts) has application. Applicant has filed the returns and
paid taxes each year. The company has a new accountant and a restructured company
that shall help her avoid the filing complications of prior years.  FC MC AG ¶ 20(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) applies.
Whole-Person Concept
Under the whole-person concept, the administrative judge must evaluate an
applicant’s eligibility for a security clearance by considering the totality of an applicant’s
conduct and all the circumstances. The administrative judge should consider the nine
adjudicative process factors listed at AG ¶ 2(a): 
(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 changes; (7) the motivation
for the conduct; (8) the potential for pressure, coercion, exploitation, or
duress; and (9) the likelihood of continuation or recurrence. 
Under AG ¶ 2(c), the ultimate determination of whether to grant eligibility for a
security clearance must be an overall commonsense judgment based upon careful
consideration of the guidelines and the whole-person concept. As noted above, the
ultimate burden of persuasion is on the applicant seeking a security clearance. 
I considered the potentially disqualifying and mitigating conditions in light of all
the facts and circumstances surrounding this case, as well as the whole-person factors.
Applicant is 38 years old. She is an educated woman who works as a managing
director for her husband’s company. She has two children. She has worked for the
company since about 2008. She has held a public trust position. This is her first request
for a security clearance.
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She did not timely file federal and state tax returns for tax years 2010, 2011 and
2012, as required. Her personal tax return was a joint one with her husband. It could not
be filed separately from the business tax return. Each year she filed for an extension. 
Applicant had no control over the accountant. She paid taxes each year. Her husband
had difficulty with the accountant and hired a new firm to restructure the company so
that the personal taxes could be filed separate from the business tax return.
Applicant  met her burden of proof in this case. I have no doubts about her
judgment or reliability.  Applicant has mitigated the security concerns under the financial
considerations guideline.
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: For  Applicant
Conclusion
In light of all of the circumstances presented by the record in this case, it is
clearly consistent with the national interest to grant Applicant a security clearance.
Clearance is granted.
                                                     
NOREEN A. LYNCH.
Administrative Judge