1 DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) ) ISCR Case No. 16-01908 ) Applicant for Security Clearance ) Appearances For Government: Chris Morin, Esquire, Department Counsel For Applicant: Alan Edmunds, Esquire ______________ Decision ______________ RICCIARDELLO, Carol G., Administrative Judge: Applicant mitigated the security concerns under Guideline F, financial considerations. Applicant’s eligibility for a security clearance is granted. Statement of the Case On November 1, 2016, the Department of Defense Consolidated Adjudications Facility (DOD CAF) issued to Applicant a Statement of Reasons (SOR) detailing security concerns under Guidelines F, financial considerations. The action was taken under Executive Order (EO) 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 (AG) effective within the DOD on September 1, 2006. Applicant answered the SOR on December 12, 2016, and requested a hearing before an administrative judge. The case was assigned to me on February 15, 2017. The Defense Office of Hearings and Appeals (DOHA) issued a notice of hearing on February 23, 2017. I convened the hearing as scheduled on April 19, 2017. The 2 Government offered exhibits (GE) 1 through 4. Applicant testified and offered Applicant Exhibits (AE) A through Q. All exhibits were admitted without objection.1 The record was held open until April 26, 2017, to allow Applicant to submit additional documents, which he did. They were marked AE R through U and admitted into evidence without objection.2 DOHA received the hearing transcript on April 27, 2017. Findings of Fact Applicant admitted the SOR allegations in ¶¶ 1.a through 1.f with explanations. He denied SOR ¶ 1.g. After a thorough and careful review of the pleadings, exhibits, and testimony, I make the following findings of fact. Applicant is 38 years old. He married in 2003. He has two children, ages eight and four. His wife worked outside of the home until 2010. He served in the military from 2000 to 2007. He was honorably discharged in the paygrade E-5.3 He earned a bachelor’s degree and is currently enrolled in a dual master’s degree program. He anticipates completing these degrees in December 2018. He worked for a federal contractor from approximately December 2009 to October 2011. He worked overseas in this tenure from January 2010 to October 2011. He worked overseas as a federal employee from October 2011 to November 2013. Since then he has worked for a federal contractor.4 Applicant failed to timely file his federal income tax returns for tax years 2010, 2011, 2012, 2013, and 2014.5 He disclosed his failure to file returns on his August 2014 security clearance application. He stated, “filed taxes late but working with CPA firm to correct problem.”6 During his October 2014 background interview with a government investigator, he stated that he had not filed his 2011, 2012, and 2013 federal and state 1 Hearing Exhibit (HE) I is Department Counsel’s discovery letter. HE II is the exhibit list. 2 HE III is Applicant’s email correspondence submitting AE R through U. The documents were mislabeled as AE O through R. I changed the label so the documents are sequential. HE IV is Department Counsel’s email memorandum indicating he did not object to the documents. 3 Applicant was awarded the Navy Commendation Medal; Joint Service Achievement Medal; Navy-Marine Corps Achievement Medal (3 awards); Presidential Unit Citation; Good Conduct Medal (2 awards); National Defense Service Medal; Global War on Terrorism Expeditionary Medal, Iraq; Global War on Terrorism Service Medal; and the Sea Service Deployment Ribbon. 4 Tr. 23-29, 46-50, 103-108. 5 Applicant’s failure to timely file his state tax returns for the same years was not alleged, and will not be considered for disqualifying purposes, but will be considered when making a credibility determination, in applying mitigating conditions, and in a whole-person analysis. 6 GE 1 at page 36. 3 tax returns because he was overseas. He planned to file them by December 2014. He stated that he filed an extension, but he did not follow through.7 Applicant provided a letter from a certified public accounting (CPA) firm. It verified that Applicant became their client in October 2015.8 The firm prepared Applicant’s 2010 through 2015 federal and state income tax returns. The filing dates were as follows: tax year 2010 filed on January 12, 2016; tax year 2011 filed on January 12, 2016; tax year 2012 filed on January 20, 2016; tax year 2013 filed March 7, 2016; tax year 2014 filed on March 25, 2016; and tax year 2015, filed on August 16, 2016.9 Applicant provided tax transcripts from the Internal Revenue Service (IRS). The transcript for 2011 notes that an extension for filing was granted on April 12, 2012. An inquiry by the IRS was sent to Applicant on March 26, 2013, regarding his failure to file his 2011 return. The IRS issued a notice on April 15, 2013. On March 10, 2014, the IRS prepared a substitute return for Applicant’s 2011 federal income taxes.10 Applicant attributed his failure to file his income tax returns to being overseas. He thought he could get an extension and file after he returned from overseas. He testified that the information he needed for filing his tax returns was in storage. In 2014, he and his wife were living in two different states and he was traveling back and forth. He explained he did not have access to his records, which were in storage, in a different state then where his wife was living. In addition, in 2014, his family was recovering from the passing of his mother-in-law and dealing with her estate. He stated that while overseas he was consumed with his job. He testified that his wife was responsible for the finances while he was overseas. She would get the mail and open it. He further explained that his wife put their mail in the storage unit. She received a letter from the IRS and told Applicant. He did not ask his wife to do anything about their income tax returns before 2013.11 7 Tr. 51; GE 2. Although not raised by Applicant, the IRS grants automatic extensions to file income tax returns if a person is serving in a combat zone or a contingency operation in support of the Armed Forces. In addition to military personnel, it applies to support personnel, such as civilian personnel acting under the direction of the Armed Forces in support of those forces. Based on Applicant’s testimony as to the country where he was working, it is considered a combat zone. It is likely he was working in support of the Armed Forces while working with a federal contractor from December 2009 through October 2011 and then while working as a government employee from October 2011 to November 2013. It is likely Applicant would have been given an automatic extension of six months to file his income tax returns, with the time starting from when he returned. Other factors may affect the extension, but Applicant did not provide specific information. https://www/irs.gov/publications/p3/ar02.html#en 8 It is unknown if Applicant previously hired a different firm. 9 Tr. 29-33. Applicant’s 2015 federal and state tax returns were timely filed. This information is what the CPA firm reflected in their letter. 10 Tr. 51-57; AE A. 11 Tr. 41-43, 51-73, 102. 4 Applicant owed the IRS approximately $27,512 for delinquent taxes for tax years 2010 and 2011, as alleged in SOR ¶ 1.d. In his answer to the SOR, he admitted he owed the IRS for delinquent taxes, but disputed the amount, indicating it was $14,662. In his answer, he explained this tax debt was resolved after he completed filing his delinquent tax returns and refunds were applied to the balance. Applicant’s tax transcripts reflect he has a zero balance owed.12 The debts alleged in the SOR are substantiated by credit reports from May 2016 and September 2014. SOR ¶ 1.e ($6,513) alleged a credit card debt that was charged off. Applicant did not know why this account became delinquent. The account was opened in May 2013 and the last activity noted was September 2015. Applicant testified that he contacted the original creditor before he received the SOR, but the debt had been sent to a third party, so it delayed him entering into a payment plan. A payment plan was established in December 2016. Applicant made a small initial payment as required and then the plan calls for monthly payments of $186 for 34 months, starting in January 2017. He made payments for January through April 2017.13 The debt in SOR ¶ 1.f ($3,013) was opened in June 2014 and the last activity was August 2015. Applicant provided a letter from the creditor dated February 6, 2017, with an offer to settle the debt for 60% of the amount owed, provided the settlement payment was received in the collection company’s office by March 10, 2017. Applicant provided a copy of his letter to the creditor dated April 10, 2017, and copies of post- dated checks for April and May 2017 for $678 to settle the debt. Applicant testified that the creditor verbally accepted his settlement offer.14 Applicant disputed the debt in SOR ¶ 1.g ($2,459) with the credit bureau, explaining he never had an account with the creditor. A credit report from September 2016 does not report this debt.15 Applicant attended financial counseling in February 2017. He intends to timely submit his future tax returns.16 He provided copies of his performance evaluations that primarily reflect: “exceeds the expectation.” He provided copies of his academic transcripts, awards, military service and awards, and resume. He provided character letters. He is described as innovative, efficient, gifted, knowledgeable, competent, talented, loyal, dedicated, and trustworthy. He is considered a leader and a team player.17 12Tr. 29-30; Answer to the SOR; AE A. 13 Tr. 33-34, 76-82; AE B, R. 14 Tr.34, 80, 82-88; AE C, S. 15 Tr. 34-37; GE 4; AE D. 16 AE K, Q. 17 AE E, F, G, H, I, J, L, M, N. 5 Policies When evaluating an applicant’s suitability for a security clearance, the administrative judge must consider the adjudicative guidelines. In addition to brief introductory explanations for each guideline, the adjudicative guidelines list potentially disqualifying conditions and mitigating conditions, which are used in evaluating an applicant’s eligibility for access to classified information. These guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, these guidelines are applied in conjunction with the factors listed in the adjudicative process. The administrative judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision. According to AG ¶ 2(c), the entire process is a conscientious scrutiny of a number of variables known as the “whole-person concept.” The 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. Likewise, I have not drawn inferences grounded on mere speculation or conjecture. Under Directive ¶ E3.1.14, the Government must present evidence to establish controverted facts alleged in the SOR. Under Directive ¶ E3.1.15, 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 and has the ultimate burden of persuasion to obtain a favorable security decision.” 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 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 safeguard 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 applicant concerned.” See also EO 12968, Section 3.1(b) (listing multiple prerequisites for access to classified or sensitive information). 6 Analysis Guideline F, Financial Considerations The security concern for financial considerations is set out in AG & 18: 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. This concern is broader than the possibility that an individual might knowingly compromise classified information in order to raise money. It encompasses concerns about an individual’s self-control, judgment, and other qualities essential to protecting classified information. An individual who is financially irresponsible may also be irresponsible, unconcerned, or negligent in handing and safeguarding classified information.18 The guideline notes several conditions that could raise security concerns. I have considered all of the disqualifying conditions under AG & 19, and the following three are potentially applicable: (a) inability or unwillingness to satisfy debts; (c) a history of not meeting financial obligations; and (g) failure to file annual Federal, state, or local income tax returns as required or the fraudulent filing of the same; Applicant had delinquent debts that began to accumulate in 2015. He failed to timely file his 2010 through 2014 federal income tax returns. He was unaware that he may have been eligible for an automatic extension for tax years 2010, 2011, and 2012, and he thought he was required to file the returns. The exemption would not have applied to tax years 2013 or 2014.19 The above disqualifying conditions apply. The guideline also includes conditions that could mitigate security concerns arising from financial difficulties. The following mitigating conditions under AG ¶ 20 are potentially applicable: (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 18 See ISCR Case No. 11-05365 at 3 (App.Bd. May 1, 2012). 19 See ISCR Case 08-08831 at 5 (App. Bd. Jan. 4, 2011). 7 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 the dispute or provides evidence of actions to resolve the issue. Applicant’s tax debt is paid. One of Applicant’s delinquent debts (SOR ¶ 1.e) is being resolved through a payment plan. He provided the collection company of the other delinquent debt (SOR ¶ 1.f) two post-dated payments to resolve the debt. His delinquent federal tax returns are filed. I find that Applicant’s financial issues have been substantially resolved and are under control. They occurred under circumstances that are unlikely to recur and do not cast doubt on his current reliability, trustworthiness, and good judgment. AG ¶¶ 20(a) is applicable. Applicant attributed his failure to timely file his federal and state tax returns to being overseas and his failure to retrieve documents in storage when he returned because he and his wife lived in two different locations. Applicant was aware that an extension to file his 2011 tax return had expired and he failed to follow through and file the tax return and subsequent tax returns. Although Applicant stated that he believed he could file the tax returns when he returned, he did not do so in a timely manner. He did not have an explanation for why he had delinquent debts. These matters were within his control. AG ¶ 20(b) does not apply. Applicant filed his delinquent tax returns before receiving the SOR. He participated in financial counseling, satisfied his tax debt, and is addressing his two delinquent debts. There are clear indications the problem is being resolved and under control. He has initiated a good-faith effort to pay his delinquent debts. Applicant disputed the debt in SOR ¶ 1.g and it is no longer listed on his 2016 credit report. AG ¶¶ 20(c), 20(d), and 20(e) apply. 8 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 the applicant’s conduct and all relevant 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. I considered the potentially disqualifying and mitigating conditions in light of all the facts and circumstances surrounding this case. I have incorporated my comments under Guideline F in my whole-person analysis. Some of the factors in AG ¶ 2(a) were addressed under that guideline, but some warrant additional comment. Applicant is a 38-year-old educated man. He served eight years in the military and received an honorable discharge. Applicant has a history of not filing his tax returns when they were due. He was aware that was a concern when he completed his SCA and when he discussed his unfiled tax returns in a statement he provided for his background investigation. Despite that knowledge, he was negligent in complying with his legal obligation to file his tax returns for tax years 2010 through 2014. Applicant filed those returns in 2016, before he received the SOR, and his refunds were applied to the amounts owed. Applicant credibly testified that he intends to file his tax returns on time in the future. Overall, the record evidence does not leave me with questions or doubts about Applicant’s eligibility and suitability for a security clearance. For all these reasons, I conclude Applicant mitigated the security concern arising under the financial considerations guideline. 9 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.g: 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. Eligibility for access to classified information is granted. _____________________________ Carol G. Ricciardello Administrative Judge