1 DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) REDACTED ) ISCR Case No. 16-01681 ) Applicant for Security Clearance ) Appearances For Government: Allison Marie and Alison O’Connell, Department Counsel For Applicant: Pro se ______________ Decision ______________ MENDEZ, Francisco, Administrative Judge: Applicant did not present sufficient evidence to mitigate security concerns raised by past-due state taxes. Clearance is denied. Statement of the Case On August 26, 2016, the Department of Defense (DOD) Consolidated Adjudications Facility (CAF) sent Applicant a Statement of Reasons (SOR) alleging security concerns under the financial considerations guideline.1 Applicant answered the SOR and requested a hearing to establish his continued eligibility for a security clearance. On February 16, 2017, a date mutually agreed to by the parties, the hearing was held. Applicant testified at the hearing and the exhibits offered by the parties (at hearing and post-hearing) were admitted into the administrative record without objection. (Government Exhibits 1 – 4 and Applicant’s Exhibits A – H.)2 1 This action was taken under Executive Order (E.O.) 10865, Safeguarding Classified Information within Industry (February 20, 1960), as amended; Department of Defense Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program (January 2, 1992), as amended (Directive); and the Adjudicative Guidelines (AG) implemented by the Department of Defense on September 1, 2006. 2 Prehearing correspondence, notice of hearing, case management order, and post-hearing correspondence were marked and are attached to the record as Appellate Exhibits I – IV. 2 Findings of Fact Applicant, who is in his mid-forties, is married. He and his wife have been together for about 20 years and they have three children. He earned an associate’s degree in the early nineties in restaurant and hospitality management, and for the next 15 years worked managing restaurants. In about 2005, when Applicant’s wife received a job transfer and looking to improve his family’s quality of life, Applicant moved to State A. He was unemployed for a time and decided to change careers. He became a federal government contractor in 2008 and has been gainfully employed as a contractor to the present day. He has been with his current employer since about 2013. He is working two jobs and averages about 60 hours a week between the two jobs. Over the past three years, Applicant has averaged an annual income of between $60,000 and $85,000. He and his wife’s combined income last year was about $100,000. He has held a security clearance in connection with his employment as a federal contractor since about 2008.3 Applicant’s current tax-related financial problems date back several years as a result of: (a) Applicant claiming too many exemptions and thereby failing to deduct a sufficient amount in income taxes from his salary to pay his resulting tax obligations. At one point, Applicant was claiming approximately 10 exemptions. (b) Improperly prepared tax returns by his former tax preparer who claimed too many deductions. These deductions were subsequently disallowed. A subsequent audit of Applicant’s 2009 – 2013 tax returns determined that he and his wife owed federal and state income taxes for those years.4 In 2014, with the assistance of a professional tax firm, Applicant addressed his past-due federal taxes and related tax liens through an offer-in-compromise. He paid $100 to settle his outstanding federal tax debt, totaling less than $5,000. The federal tax liens were released in about May 2015.5 Applicant also testified that he owes $30,000 in back taxes to his state. He claims to have become aware of a state tax lien, which was filed against him in 2013, only when going through the process of purchasing a home in 2015. He is working with the same tax firm to address and resolve his state tax debt and associated tax lien(s).6 3 Tr. 7-8, 22-26, 35-43; Exhibit 1; Exhibit E. 4 Tr. 28-34, 49-51, 63-65, 68. 5 Tr. 52-54, 70-71. Exhibit H at 2. During his testimony, Applicant reviewed and referred to a document that was not offered, but was used to refresh his recollection as to when the federal tax lien was released. 6 Tr. 26-31, 43, 51-60; Exhibits A – C. 3 In 2013, the state filed a tax lien against Applicant for over $18,500 for unpaid taxes for tax years 2009 – 2012. The lien is referenced at SOR 1.a and, as of the close of the record, no evidence was presented that the lien was satisfied, released, or otherwise resolved. Post-hearing, Applicant submitted a letter from the tax firm that, in pertinent part, states the firm was “retained to cover any and all Federal or State tax liens assessed between 1990-2017.” The letter goes on to state that in late February 2017 Applicant entered into an agreement with the state to resolve his outstanding state tax debt. Per the terms of the agreement, Applicant was required to pay “$500 down and monthly payments of $500 per month to resolve this tax matter in a 36 month installment plan.”7 No evidence of payment was submitted. Applicant’s delinquent state tax debt for tax year 2013 is referenced at SOR 1.b and, as of the close of the record, remains unresolved. Applicant has not obtained financial counseling beyond the advice he received from the tax firm to claim the proper amount of exemptions on his W-2. At hearing, he estimated that, after paying his recurring monthly expenses, he had approximately $200 a month in disposable income that he can use to pay his debts and meet unexpected expenses.8 No evidence was provided by Applicant post-hearing to explain how he expected to handle the $500 monthly payment plan to resolve his state tax debt. Applicant did not report the state tax lien or back taxes owed to the state on the most recent security clearance application, which he submitted in June 2015. He did, however, disclose the federal tax debt and lien, noting that he had resolved it with the assistance of the tax firm. He “formally” reported the state tax issue to his company’s facility security officer (FSO) in January 2016, after receiving an annual refresher security training briefing. The following month, Applicant apologized to his FSO for not reporting the adverse financial information regarding his tax situation “as it happened.” He blamed poor advice from fellow coworkers for his failure to timely self-report the potentially adverse financial information.9 He testified that his failure to report this information on his clearance application and to his FSO was not due to any form of dishonesty on his part.10 He testified that he completed a polygraph shortly before the hearing.11 7 Exhibit H at 1. 8 Tr. 32-33, 47. 9 Exhibit 1 at 35-37, Exhibit C at 1-2. Applicant’s apparent failure to report the adverse financial information to his FSO in a timely manner and failure to report the adverse information regarding his state taxes on his clearance application were not alleged in the SOR. Additionally, his federal tax debt, which is now resolved, and the total amount of back taxes owed to the state (beyond the approximate $11,000 he owes for the 2013 tax year) were also not alleged. Matters not alleged in an SOR can only be considered for certain limited purposes, such as assessing an applicant’s mitigation case and whole-person factors. I have considered the non-alleged, potentially adverse matters raised by the evidence for these limited purposes. 10 Tr. 66-67. 11 Tr. 70. 4 Policies “[N]o one has a ‘right’ to a security clearance.” Department of the Navy v. Egan, 484 U.S. 518, 528 (1988). Individual applicants are eligible for access to classified information “only upon a finding that it is clearly consistent with the national interest” to authorize such access. E.O. 10865 § 2. When evaluating an applicant’s eligibility for a security clearance, an administrative judge must consider the adjudicative guidelines (AG). In addition to brief introductory explanations, the guidelines list potentially disqualifying and mitigating conditions. The guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, an administrative judge applies the guidelines in a commonsense manner, considering all available and reliable information, in arriving at a fair and impartial decision. Department Counsel must present evidence to establish controverted facts alleged in the SOR. Directive ¶ E3.1.14. Applicants are responsible for presenting “witnesses and other evidence to rebut, explain, extenuate, or mitigate facts admitted by the applicant or proven . . . and has the ultimate burden of persuasion as to obtaining a favorable clearance decision.” Directive ¶ E3.1.15. Administrative Judges are responsible for ensuring that an applicant receives fair notice of the issues raised, has a reasonable opportunity to litigate those issues, and is not subjected to unfair surprise. ISCR Case No. 12-01266 at 3 (App. Bd. Apr. 4, 2014). In resolving the ultimate question regarding an applicant’s eligibility, an administrative judge must resolve “[a]ny doubt concerning personnel being considered for access to classified information . . . in favor of national security.” AG ¶ 2(b). Moreover, recognizing the difficulty at times in making suitability determinations and the paramount importance of protecting national security, the Supreme Court has held that “security clearance determinations should err, if they must, on the side of denials.” Egan, 484 U.S. at 531. A person who seeks access to classified information enters into a fiduciary relationship with the Government predicated upon trust and confidence. This relationship transcends normal 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 an 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. Analysis Guideline F, Financial Considerations Applicant’s tax-related financial problems, as alleged in the SOR, raise the financial considerations security concern, which is explained at AG ¶ 18: 5 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. In assessing Applicant’s case, I considered the following pertinent disqualifying and mitigating conditions: AG ¶ 19(a): inability or unwillingness to satisfy debts; AG ¶ 19(c): a history of not meeting financial obligations; 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; AG ¶ 20(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; 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; and AG ¶ 20(d): the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts. An applicant who fails to timely file or pay his or her taxes, a basic and fundamental financial obligation of all citizens, bears a heavy burden in mitigating the financial considerations security concern.12 An administrative judge should closely examine the circumstances giving rise to an applicant’s tax-related issues and his or her response to it. Furthermore, an applicant’s claim of financial reform must be weighed against the overriding concerns about the individual’s lack of judgment and history of failing to abide by rules and regulations in failing to timely file or pay their taxes.13 12 See generally, ISCR Case No. 14-03358 at 3 (App. Bd. Oct. 9, 2015) (Board explained the heightened security concerns raised by tax-related financial issues, as follows: “A security clearance represents an obligation to the Federal Government for the protection of national secrets. Accordingly failure to honor other obligations to the Government has a direct bearing on an applicant’s reliability, trustworthiness, and ability to protect classified information.”). 13 ISCR Case No. 14-05794 (App. Bd. July 7, 2016); ISCR Case No. 14-00221 (App. Bd. June 29, 2016); ISCR Case No. 15-01031 (App. Bd. June 15, 2016); ISCR Case No. 12-09545 (App. Bd. Dec. 21, 2015). 6 Applicant’s current financial situation was caused by a combination of matters beyond his control and his own financial irresponsibility. On the one hand, his former tax preparer incorrectly prepared his tax returns. On the other hand, Applicant’s decision to claim far too many exemptions over a number of years is inexplicable and is the core problem for his current financial predicament. For five consecutive years (tax years 2009 – 2013), Applicant continued to claim too many exemptions and did not save enough to pay his resulting tax liability.14 Accordingly, the disqualifying conditions listed at AG ¶¶ 19(a) and 19(c) apply. Applicant did take some responsible action to address his tax situation. He resolved his delinquent federal taxes before the SOR was issued. Thus, AG ¶ 20(b) has some limited applicability, but none of the other mitigating conditions apply. Notably, as of the close of the record, approximately $30,000 in past-due state taxes remains unresolved. Furthermore, the amount Applicant has remaining each month in disposable income ($200) is insufficient to pay the monthly amount required by the installment agreement with the state tax authority ($500). Whole-Person Concept Under the whole-person concept, an administrative judge must evaluate an applicant’s eligibility for a security clearance by considering the totality of an applicant’s conduct and all the relevant circumstances. An administrative judge should consider the whole-person factors listed at AG ¶ 2(a). I hereby incorporate my above analysis and highlight some additional whole-person factors. I have specifically considered that Applicant is working two jobs to resolve the state tax debt. However, this and the other favorable record evidence does not outweigh the heightened security concerns raised by his longstanding tax issues. He has been aware that his delinquent state taxes raised a security concern for some time, but it was not until after the hearing that he entered into an agreement to resolve the issue. Notwithstanding Applicant’s stated desire to resolve his tax problems, he does not appear to have the financial means to live up to the installment agreement with the state tax authority. Therefore, Applicant failed to show his financial situation is under control and similar security-significant financial issues are unlikely to recur.15 Overall, Applicant failed to meet his burden of proof and persuasion to continue his eligibility for a security clearance. 14 ISCR Case No. 14-05794 at 6 (App. Bd. July 7, 2016) (Board finds that judge erred in failing to consider that tax issue was due to applicant’s failure to withhold a sufficient amount in taxes from his wages over a period of four years). 15 Based on the state of the record, I cannot find that Applicant deliberately falsified his clearance application when he omitted the information about his past-due state taxes and the state tax liens. Also, insufficient evidence was submitted from which I could find that Applicant deliberately failed to report this adverse information to his FSO as required. 7 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 (Financial Considerations): AGAINST APPLICANT Subparagraphs 1.a and 1.b: Against Applicant Conclusion In light of the circumstances presented by the record in this case, it is not clearly consistent with the national interest to grant Applicant eligibility for continued access to classified information. Applicant’s request for a security clearance is denied. ____________________ Francisco Mendez Administrative Judge