When an applicant for a security clearance is denied, the Department of Defense will issue a “statement of reasons” to the applicant advising him of the basis for the decision. The applicant may then request a hearing for review of that decision, and, if still unsatisfied, appeal that determination.
Both clearance applicants were initially denied for their failure to file and pay taxes. Both are middle-aged men who battled costly, protracted divorces and a cruel job market. On appeal, however, one man’s clearance was granted while the other’s was again denied. Find out why.
Tax Cheat #1 – Case No. 12-11328
The applicant in this case is a 49-year-old partner in a defense contracting business. He holds a master’s degree and served as active duty Army for 14 years. During his military service, he was awarded six Army Commendation Medals, an Overseas Service Ribbon, a Parachutist Badge, and an Air Assault Badge. He has held a security clearance since 1983 without incident.
Financial setbacks burdened the applicant for years. His business was hit when the federal government allegedly reneged on a portion of a contract in which his business was a subcontractor. Next, the prime contractor on another contract began making late payments. Additionally, the federal government’s sequestration of funds and recent shutdown forced a temporary shutdown of his own business.
Following a tumultuous relationship, the applicant endured a costly divorce. The decree required him to pay roughly $4,800 in monthly support. He was required to maintain life insurance on himself, and pay medical insurance for his wife and children. His wife suffered from epilepsy and was unable to obtain insurance, resulting in costly out-of-pocket medical attention. Additionally, he was obligated to pay his children’s college expenses and to provide each of them a car and spending money. During that time the applicant was also providing his ailing and elderly parents with financial assistance.
At the time of his security clearance application, the applicant had not yet paid his 2011 federal income taxes. He had neither filed nor paid his 2006 through 2011 state income tax returns.
He was denied a security clearance, and appealed that decision.
Just prior to his appeal, the applicant entered into an installment payment plan with his state in which he agreed to pay his past-due state income taxes. Under that plan, he will pay $4,731 per month for 36 months to fulfill the outstanding balance of $153,619. In his post-hearing submission, the applicant provided processed checks from late 2013 and early 2014 in satisfaction of his $101,600 tax debt.
THE RESULT
Clearance denied. “While conditions beyond his control [business disruptions, his wife’s health, a difficult divorce, aging parents] may have excused a short-term failure to file or pay his taxes in a timely manner, they do not provide mitigation for a continuing disregard of the law over a period of six years,” the court found.[1]
Tax Cheat #2 – Case No. 12-02328
The applicant in this case is a 56-year-old married man, and father of two children. For most of his career, he worked in the commercial music industry. When clients sought alternative methods of obtaining music for their commercial endeavors, his industry and income declined. Less work lead to increased competition.
Amid this, the applicant and his wife divorced, resulting in two long and expensive trials. The applicant’s wife lost all visitation rights due to mental issues, and the applicant assumed full custody of the two children. His wife never paid child support.
With his income waning, he could not meet his spousal support requirements. His wife obtained a judgment against him for $70,000 and placed a lien on his home. The applicant was unable to sell the house with the lien and it was foreclosed. Overwhelmed with attorney’s fees, caring for his children, and his depressed income, the applicant filed for bankruptcy.
From 2001-2003, the applicant filed his federal income tax returns but failed to pay them.
In 2005, the applicant relocated his family to a state with a lower cost of living, and one close to his parents so they could help with child care. In addition to his music work, he worked part-time at a grocery store and began earning his college degree. He completed his degree and landed a professional job in 2011. His starting salary was $55,000.
While the applicant had been filing and paying his federal income taxes during these years, his cumulative outstanding tax debt from years prior was approximately $80,501. He testified he intended to pay this debt, along with the judgment to his ex-wife and loans for his college tuition when he is in a better financial position.
He was denied a security clearance, and appealed that decision.
The Result
Clearance granted. The judge found that the adverse circumstances – the applicant’s shrinking income due to the music industry climate and his assumption of full parental duties – were beyond his control. Likewise, the applicant was responsible: the steps he took in relocating, earning a college degree, acquiring a job, repaying legal debts, and consistently filing and paying his taxes in recent years were “clear indications that his finances are under control.”
Why the divergent outcomes?
Ultimately, it was how each man mitigated his mistake that proved a critical and determining factor in his clearance determination.
Good Faith Efforts to Resolve Debt. The statute permits financial concerns to be lessen if the individual “initiated a good-faith effort to repay overdue creditors,” or “there are clear indications that the problem is being resolved or is under control.”
While the applicant in Case #2 demonstrated a handful of actions toward financial stability and tax debt repayment, the judge noted the applicant in in Case #1 “has failed to show that similar tax problems are unlikely to recur.”
Timing. The statute permits more forgiveness when “the behavior happened so long ago….it is unlikely to recur and does not cast doubt on the individual’s current reliability, trustworthiness, or good judgment.”
Whereas the applicant in Case #2 failed to pay taxes over ten years ago, the applicant in Case #1’s infraction was far more recent. The judge in his case reasoned: “This conduct is recent and continues to impugn his trustworthiness and good judgment.
Nota bene: The court considers tax debt as it does other forms of debt. According to “Guideline F” of the Adjudicative Guidelines, the failure to live within one’s means indicates “poor self-control, lack of judgment, or unwillingness to abide by rules and regulations,” which may negatively impact a clearance determination. Read more on debt and your clearance.
[1] While the clearance was denied for Guideline F considerations, the court notes there were also credibility issues affecting the decision.
