1 DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) ) ISCR Case No. 16-00569 ) Applicant for Security Clearance ) Appearances For Government: Alison O’Connell, Esq., Department Counsel For Applicant: Pro se ______________ Decision ______________ DAM, Shari, Administrative Judge: Applicant failed to mitigate the security concerns arising under Guideline F, Financial Considerations, for failing to timely pay 2005 Federal and state income taxes. Based upon a review of the pleadings and exhibits, national security eligibility for access to classified information is denied. Statement of the Case On June 8, 2016, the Department of Defense Consolidated Adjudications Facility (DOD CAF) issued to Applicant a Statement of Reasons (SOR) detailing security concerns under Guideline 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. On June 8, 2017, new AG were implemented and are effective for decisions issued after that date. 2 Applicant answered the SOR on June 24, 2016, and elected to have his case decided on the written record in lieu of a hearing (Answer). Department Counsel submitted the Government’s File of Relevant Material (FORM) on July 27, 2016. Applicant received it on August 10, 2016. He was afforded an opportunity to file objections and submit material in refutation, extenuation, or mitigation within 30 days of receipt of the FORM. The Government’s evidence is identified as Items 1 through 8. Applicant provided a response to the FORM, along with documents (Reply). I marked that submission as Applicant Exhibit (AE) A. He did not object to the Government’s evidence, and Department Counsel did not object to AE A. All exhibits are admitted into evidence. The case was assigned to me on May 22, 2017. Findings of Fact Applicant denied both SOR allegations with explanations. After a thorough and careful review of the pleadings and exhibits, I make the following findings of fact: Applicant is 43 years old. He is married. He has a child and a stepchild. He earned a bachelor’s degree in 1998. He has been employed steadily since 2002, except from 2009 to 2010. Most of his employers were federal contractors. He began working for his present employer in November 2011. He has held a security clearance for many years. (Item 5.) On September 30, 2011, Applicant submitted an Electronic Questionnaires for Investigations Processing (e-QIP). In response to questions about his financial record, he disclosed that he failed to file his 2005 Federal and state income tax returns and to pay taxes owed.1 He estimated that he owed the Internal Revenue Service (IRS) about $37,000. He did not list an amount owed to the state. (Item 5.) On November 11, 2011, Applicant was interviewed by a government investigator about his background and information included in his e-QIP. The original estimated 2005 tax was $27,000, but with penalties and fees the amount increased to $52,000. Applicant said he had been in contact with the IRS and the state taxing agency for the past two years, attempting to resolve the taxes. He explained that he purchased two rental properties for investments in 2005. Subsequently, the tenants did not pay their rent. He then withdrew cash from their equity accounts for repairs and expenses. In 2010, the properties were sold through foreclosures. After the sale, the IRS considered the 2005 equity withdrawals as unreported taxable income and assessed additional taxes. Applicant stated that he was unemployed between 2009 and 2010, and was unable to pay the assessed 2005 taxes. (Item 5.) The state also assessed a tax liability for $6,000 on the equity transactions. That tax amount increased to $10,000. Applicant hired a lawyer to dispute the tax issues. Applicant subsequently made a settlement offer to the 1 The SOR did not allege Applicant’s failure to timely file both Federal and state income tax returns. Hence, those facts will not be considered in analyzing disqualifying conditions. They may be considered in evaluating Applicant’s credibility, and analyzing mitigating conditions and the whole-person concept. There is no evidence documenting when those returns were filed. 3 state which was accepted and paid in January 2010. He said he filed all other tax year returns and paid all taxes. (Item 7; AE A.) Applicant took a financial and credit counseling course through his church. His wife also participated in the course in order to resolve her debts. (Item 7.) In answer to SOR ¶ 1.a, which alleged Applicant’s indebtedness to the state for a tax lien filed in 2010, in the amount of $10,106 for 2005, Applicant stated that the debt was settled two years ago. (Answer.) In his Reply to the FORM, he submitted a copy of a satisfaction and release of the tax lien by the state, dated August 8, 2014. (AE A.) This debt is resolved. In answer to SOR ¶ 1.b, which alleged Applicant’s indebtedness to the IRS for 2005 taxes in the amount of $50,381, Applicant stated that the amount was down to $15,000 through payment arrangements. “Each tax year filing deducts large amounts from balance.” (Answer.) He noted that the debt should be paid in spring of 2017. (Answer.) He did not include any information from the IRS documenting those arrangements or payments. In his Reply to the FORM, Applicant submitted an August 30, 2016 letter from the IRS indicating that he still owed $5,361 for tax year 2011. (AE A.) This letter makes no reference to the 2005 tax debt and does not document the 2005 balance as being $15,000. It also stated “Case Closed” and “Currently Not Collectible.” (AE A.) Applicant did not submit any information explaining how the 2016 letter referencing tax year 2011 related to tax year 2005, or why the matter is marked closed or uncollectible. This debt is unresolved. Applicant did not provide a budget or other information about the status of his financial solvency and ability to resolve debts or obligations. No additional information was submitted pertinent to the 2005 tax debts. Policies When evaluating an applicant’s national security eligibility, the administrative judge must consider the AG. In addition to brief introductory explanations for each guideline, the AG 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. 4 The protection of the national security is the paramount consideration. AG ¶ 2(b) requires that “[a]ny doubt concerning personnel being considered for national security eligibility will be resolved in favor of the 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 avoided drawing 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. Directive ¶ E3.1.15 states an “applicant is responsible for presenting witnesses and other evidence to rebut, explain, extenuate, or mitigate facts admitted by the applicant or proven by Department Counsel, and has the ultimate burden of persuasion as to obtaining a favorable clearance 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 that an applicant may deliberately or inadvertently fail to safeguard classified information. Such decisions entail a certain degree of legally permissible extrapolation as to potential, rather than actual, risk of compromise of classified information. Finally, as emphasized in Section 7 of EO 10865, “[a]ny determination under this order adverse to an applicant 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). Analysis Guideline F: Financial Considerations The security concern relating to the guideline for financial considerations is set out in AG & 18: Failure 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 or sensitive information. Financial distress can also be caused or exacerbated by, and thus can be a possible indicator of, other issues of personnel security concern such as excessive gambling mental health conditions, substance misuse, or alcohol abuse or dependence. An individual who is financially overextended is at greater risk of having to engage in illegal or otherwise questionable acts to generate funds. 5 Affluence that cannot be explained by known sources of income is also a security concern insofar as it may result from criminal activity, including espionage. AG ¶ 19 provides conditions that could raise security concerns. The following four are potentially applicable: (a) inability to satisfy debts; (b) unwillingness to satisfy debts regardless of the ability to do so; (c) a history of not meeting financial obligations; and (f) failure to file or fraudulently filing annual Federal, state, or local income tax returns or failure to pay annual Federal, state, or local income tax as required. Applicant failed to timely pay Federal and state income taxes for 2005. He did not begin to address the taxes until 2010. He was either unable or unwilling to pay them. There is sufficient evidence to support the application of the above disqualifying conditions. 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 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, a death, divorce or separation, clear victimization by predatory lending practices, or identity theft), and the individual acted responsibly under the circumstances; (c) the individual has received or is receiving financial counseling for the problem from a legitimate and credible source, such as a non-profit credit counseling service, and there are clear indications that the problem is being resolved or is under control; (d) the individual initiated and is adhering to a good-faith effort to repay overdue creditors or otherwise resolve debts; (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 6 proof to substantiate the basis of the dispute or provides evidence of actions to resolve the issue; and (g) the individual has made arrangements with the appropriate tax authority to file and pay the amount owed and is in compliance with those arrangements. Applicant did not timely pay assessed 2005 Federal and state taxes. The file does not contain information pertinent to his dispute with the IRS and state regarding this liability. In early 2010, he resolved the state tax lien. There is no credible information indicating when he began resolving the Federal taxes or confirming its status. According to the evidence the debt is ongoing. AG ¶ 20(a) does not apply. Applicant’s financial problems began after he purchased investment properties and tenants failed to pay rent. He subsequently withdrew cash from equity accounts to maintain the properties, resulting in a taxable event. The underlying problem with his tenants may have been a circumstance beyond his control, and there is evidence that he may have had a legal basis for challenging the IRS’s position, in an attempt to responsibly resolve it. He established partial mitigation under AG ¶ 20(b). Applicant participated in financial counseling; however, there is no documentary evidence from the IRS specifically addressing his 2005 taxes or proving that the debt is under control. The evidence does not establish mitigation under AG ¶¶ 20(c). There is evidence confirming that in early 2010 Applicant resolved the state lien after he negotiated a settlement with the state. The evidence establishes mitigation under AG ¶ 20(d) as to that debt. Applicant said his lawyer had a legal basis to dispute the 2005 Federal taxes and state tax lien. However, he did not provide any evidence to confirm that dispute, the timeframe in which he filed it, or the final outcome. AG ¶ 20(e) partially applies. Applicant did not submit evidence from the IRS documenting his payment plan or method of resolving the unpaid 2005 Federal income taxes. Nor did he submit evidence that he has been making payments on the debt over the years. Hence, there is insufficient evidence to establish mitigation under AG ¶ 20(g). 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 the circumstances. The administrative judge should consider the nine adjudicative process factors listed at AG ¶ 2(d): (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 7 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 national security eligibility 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 facts and circumstances surrounding this case. Applicant is 43 years old. He has been employed steadily since 2002, except from November 2009 to April 2010 when he was unemployed, and seemingly some of these tax issues arose. In or about 2005, Applicant purchased investment properties, which he was financially unable to maintain without receiving rent. He withdrew money from their equity accounts in order to maintain the properties, resulting in a significant tax liability. In early 2010, he resolved a 2005 state tax lien, and provided evidence of its resolution. As of September 2016, the status of his 2005 IRS taxes is unknown. He submitted minimal persuasive evidence on this issue, such that I am unable to determine whether the matter is resolved or being resolved. Additionally, he has not provided sufficient evidence about his overall financial stability to demonstrate that further tax problems or financial delinquencies are unlikely. The record evidence leaves me with questions and doubts as to Applicant’s eligibility and suitability for a security clearance. For all these reasons, I conclude Applicant failed to mitigate the security concerns arising under Guideline F. 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: AGAINST APPLICANT Subparagraph 1.a: For Applicant Subparagraph 1.b: Against Applicant Conclusion In light of all of the circumstances presented by the record in this case, it is not clearly consistent with the national interest to grant Applicant access to classified information. National security eligibility is denied. ________________________ Shari Dam Administrative Judge