Case No. VSO-0061, 25 DOE ¶ 82,791 (H.O. Woods Feb. 13, 1996)

Case No. VSO-0061, 25 DOE ¶ 82,791 (H.O. Woods Feb. 13, 1996)

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* The original of this document contains information which is subject to withholding from disclosure under 5 U.S.C. 552. Such material has been deleted from this copy and replaced with XXXXX's.

DEPARTMENT OF ENERGY

OFFICE OF HEARINGS AND APPEALS

Hearing Officer's Opinion

Case Name: Personnel Security Hearing

Date of Filing: October 6, 1995

Case Number: VSO-0061

This Opinion considers the continued eligibility of XXXXX (hereinafter referred to as "the individual") to hold a level "Q" access authorization under the regulations set forth at 10 C.F.R. Part 710, entitled "Criteria and Procedures for Determining Eligibility for Access to Classified Matter or Special Nuclear Material." As explained below, it is my opinion that the individual's access authorization should not be restored.

I. STATEMENT OF THE CASE

On August 29, 1995, the Department of Energy's XXXXX Operations Office (DOE/XXXXX) issued a Notification Letter to the individual. The Notification Letter charged that the individual had engaged in conduct subject to 10 C.F.R. § 710.8(l) (Criterion L).

Criterion L concerns unusual conduct or circumstances that "tend to show that the individual is not honest, reliable, or trustworthy; or which furnishes reason to believe that he may be subject to pressure ... or duress that may cause him to act contrary to the best interests of national security." The Notification Letter states that during personnel security interviews, the individual provided the information that indicates that he has "committed crimes" related to the non-filing of income tax returns and the non-payment of income tax.

In his Response dated September 18, 1995, the individual requested "a hearing before a hearing officer in order to have my access authorization reinstated." His Response contains a detailed discussion responding to the specific factual and legal findings made in the Notification Letter. The Office of Hearings and Appeals received the case on October 6, 1995, and a hearing was held before the undersigned hearing officer on XXXXXXXXXXXXXXXXX.

The individual was assisted in his presentation by Mr. XXXXXXXXXXX.<1>Two other witnesses presented by the DOE/XXXXX

testified at the hearing. The first DOE/XXXXX witness was Mr. XXXXXXXXXXXXXXXXXXXX, an attorney practicing and specializing in tax law, and with prior experience as a certified public accountant practicing tax accounting. Mr. XXXXXXX was qualified as an expert witness regarding federal tax requirements. Hearing Transcript at 87-90. The other DOE/XXXXX witness was Ms. XXXXXXXXXX, the DOE/XXXXX Personnel Security Specialist who conducted an April 20, 1994 personnel security interview with the individual. The Office of Hearings and Appeals received the Hearing Transcript on XXXXXXXXXXXXXXXX.

II. FINDINGS OF FACT

There are no material factual disputes in this case. The individual has admitted to the factual allegations made in the Notification Letter concerning the non-filing of tax returns and the non-payment of taxes.

Since XXXXX, 1980, the individual has been employed with the XXXXX. Throughout this period, he has performed services for the DOE requiring security access authorization through his employer's contract with the DOE. He describes his work as XXXXX, involving extremely precise work done XXXXX to meet very specific design descriptions for DOE defense products. Hearing Transcript at 24, 57.

In March 1993, the individual notified his employer's Payroll Department that he wanted to stop having income taxes withheld from his salary check, and submitted a substitute form W-8. DOE/XXXXX Exhibit 5. This substitute form, entitled "Certificate of Foreign Status for an American, Non-Resident Alien Outside the District of Columbia, i.e., the United States, USC 26 7701(a)(9)," asserted that "the signer is immune from any withholding of funds due him or her." Id. The declarations made by the individual on this form raised concerns with XXXXX personnel, who referred the matter to DOE/XXXXX. Testimony of XXXXXXXXXX, Hearing Transcript at 137.

The Notification Letter states that during personnel security interviews conducted on April 20, 1994 and November 30, 1994, the individual provided information that indicates that he had not filed his income tax returns or permitted correct tax withholding by his employer. The Notification Letter summarizes this information as follows:

He had not filed federal income tax returns for 1992 and 1993 tax years because it is his belief that he is not required to do so. His intent was to not file a federal income tax return for the 1994 tax year either.

He maintains that he is not required to complete or submit a Form W-4, nor to pay federal or state income taxes.

He submitted a "Substitute Form for Form W-8 or Form 1099, Certificate of Foreign Status for an American, Non-Resident Alien Outside the District of Columbia," to his employer in March 1993, in lieu of the required Form W-4.

As a result, the DOE/XXXXX finds that the individual's actions are in conflict with well known sections of the Internal Revenue Code (IRC). It further finds that these actions may constitute the felony of tax evasion under IRC Section 7201, "Attempt to Evade or Defeat Tax," or may constitute a misdemeanor under IRC Section 7203, "Willful Failure to File a Return." Finally, the DOE/XXXXX finds that he may have violated IRC Section 7205 by supplying false or fraudulent information to an employer required to withhold money from wages for the purpose of paying taxes under IRC Section 3402. See Notification Letter Enclosure 1, "Information Creating a Substantial Doubt Regarding Eligibility for Access Authorization."

The Notification Letter explained that the individual's conduct caused the DOE/XXXXX to have substantial doubts about his continued eligibility for access authorization. Because of these doubts, the DOE/XXXXX informed the individual that his access authorization was suspended, pending administrative review under 10 C.F.R. Part 710.

In his Response dated September 18, 1995, the individual requested a hearing. In the Response, he denied "any and all accusations that I have committed any crimes related to the non-filing of income tax returns/non-payment of income tax..." Response at 1. The individual asserts that a violation of IRC Section 7201 requires a "willful" action to evade a tax imposed by the IRC and that a violation of Section 7203 requires a "willful" failure to file. He contends that he has not committed a willful violation with respect to these provisions because he is not required by the IRC to file a tax return. Response at 3. The individual contends that his action in not filing tax returns is based "on the lack of requirements imposed upon me by the statutes and regulations with respect to filing a tax return of any kind." Response at 4. He demands that "the DOE exhibit the statute and regulation that I am in violation of for the penalties of either 7201 or 7203 of the IRC to attach to." Response at 5.

The individual also objects to the Notification Letter's finding that he appears to have supplied his employer with a substitute W-8 form containing false information for the purpose of evading the withholding of tax. He asserts that he was not required to have taxes withheld from his salary. His assertion in this regard rests on his interpretation of the term "employee" as it is used in the IRC. IRC Chapter 24, Section 3401(c), states that "the term 'employee' includes an officer, employee, or elected official, of the United States, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing." [Emphasis added]. He asserts that the term "employee" as used in the IRC must be construed only to include those employees specifically enumerated in the IRC's definition, i.e., federal, state and District of Columbia employees.

Since I am not a Federal or State employee as defined by the statute or regulation and these sections only apply to the employees so described then I was entitled to submit the substitute W-8 form . . . .

Therefore, since I have complied with the statutes and regulations completely and have submitted an affidavit of my XXXXX citizenship . . . to verify my status as a non-resident to Washington D.C. or possessions or territories of the United States then I have satisfied the requirements of the law and I am not willfully supplying any false or fraudulent information to my employer.

Response at 6.

III. ANALYSIS

The regulations state that "[t]he decision as to access authorization is a comprehensive, common-sense judgment, made after consideration of all the relevant information, favorable or unfavorable, as to whether the granting of access authorization would not endanger the common defense and security and would be clearly consistent with the national interest." 10 C.F.R. §710.7(a). I have examined the evidence in light of the requirements of Part 710, and assessed the credibility and demeanor of the witnesses who gave testimony at the hearing.

A DOE administrative review proceeding under 10 C.F.R. Part 710 is not a criminal case, in which the burden is on the government to prove the defendant guilty beyond a reasonable doubt. In this type of case, we are dealing with a different standard which is designed to protect national security interests. Administrative review is authorized when the existence of derogatory information leaves unresolved questions about an individual's eligibility for access authorization.

A hearing is "for the purpose of affording the individual an opportunity of supporting his eligibility for access authorization." 10 C.F.R. § 710.21(b)(6). The burden is on the individual to come forward at the hearing with evidence to convince the DOE that restoring his access authorization "would not endanger the common defense and security and would be clearly consistent with the national interest." 10 C.F.R. § 710.27(d). This standard implies that there is a strong presumption against the granting or restoring of a security clearance. See Dep't of Navy v. Egan, 484 U.S. 518, 531 (1988)("clearly consistent with the national interest" standard for the granting of security clearances indicates "that security determinations should err, if they must, on the side of denials."); Dorfmont v. Brown, 913 F.2d. 1399, 1403 (9th Cir. 1990), cert. denied, 499 U.S. 905 (1991) (strong presumption against the issuance of a security clearance). Consequently, it is necessary and appropriate to place the burden of persuasion on the individual in cases involving national security issues. Personnel Security Hearing, VSO-0002, 24 DOE ¶ 82,752 at 85,511 (1995).

In making a determination on the issue of access authorization for this individual, I will consider his assertions that his actions regarding his tax obligations do not constitute unusual conduct under Criterion L. I also will consider the relevant factors and circumstances connected with the individual's conduct. These factors, which are set forth at 10 C.F.R. § 710.7(c), include "the nature, extent, and seriousness of the conduct; the circumstances surrounding the conduct, to include knowledgeable participation; the frequency and recency of the conduct; the age and maturity of the individual at the time of the conduct; the voluntariness of participation; the absence or presence of rehabilitation or reformation and other pertinent behavioral changes; the motivation for the conduct; the potential for pressure, coercion, exploitation, or duress; [and] the likelihood of continuation or recurrence ..."

I have reviewed the evidence in this proceeding to determine whether the individual engaged in unusual conduct under Criterion L and in light of the factors and circumstances set forth in Section 710.7(c). As discussed below, I find that the individual's actions regarding his tax obligations constitute unusual conduct, and that his statements and recent actions fail to mitigate the concerns raised by this conduct.

A. The Requirement to File a Federal Income Tax Return

As an initial matter, I find no merit in the individual's assertion that he cannot file federal income tax returns because he lacks precise information regarding the legal requirements of the IRC and the statutory basis for the requirement that he file a tax return. By his conscious and deliberate decision, the individual has not filed a federal income tax return for the years 1992, 1993 and 1994. He has repeatedly asserted that prior to his filing of any tax return, the Internal Revenue Service (IRS) must furnish him with the precise statutory and regulatory basis for his obligation to submit a tax return and pay taxes. Otherwise, he insists, he would be at risk of submitting an incorrect tax return and thereby committing a felony in violation of Sections 7206 of the IRC. As quoted by the individual in his Response, that provision provides that "any person who ... willfully makes and subscribes any return ... which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter shall be guilty of a felony ...." Response at 3 [emphasis added by the individual].<2>See also Hearing Transcript at 168-172.

It is clearly understood by the vast majority of Americans that individuals meeting certain basic requirements of income are required to submit an annual federal income tax return. See Personnel Security Hearing, VSO-0048, 25 DOE ¶ 82,776 at 85,677 (1995) (appeal pending) (individuals are required by law not only to pay taxes, but to file a tax return). Mr. XXXXXXX, the DOE/XXXXX's tax expert, described this obligation as follows:

The revenue code requires an individual to file a tax return reporting the pertinent information as set forth in the tax form itself [for] paying his tax liability. This is a requirement of all individuals who are citizens of the United States or those persons who may not be U.S. citizens but who are resident aliens who are earning income within the United States.

Hearing Transcript at 91. In his testimony, Mr. XXXXXXX stated that the IRC provides both criminal penalties for failure to file income tax returns and civil penalties for failure to pay taxes. See Hearing Transcript at 105. Clearly, then, the federal tax laws and regulations do not allow the individual to fail to file tax returns or pay taxes on the grounds that he cannot understand the requirements of the tax laws. According to Mr. XXXXXXX, persons are required to file correct tax returns and the provisions of the tax code and regulations provide procedures for the Internal Revenue Service to use to enforce this requirement. Hearing Transcript at 98.

In this proceeding, the individual contends that he has a right to judicial review of his interpretation of the IRC, and that it is an abridgment of his rights for the DOE/XXXXX to view his legal disputes with the IRS as a security concern. Hearing Transcript at 172-75. I disagree. The individual clearly has taken actions which violate commonly understood federal tax requirements. Such actions clearly raise serious security concerns, since the willingness and ability to follow laws and regulations is essential to maintaining the security of classified documents and materials. Moreover, it is not necessary for someone who disagrees with the IRS's instructions concerning tax requirements to place himself in violation of those requirements in order to have the issue reviewed by the courts. According to Mr. XXXXXXXs, there is an alternative to triggering an IRS enforcement action for an individual interested in contesting a tax issue.

Now there are alternatives. An individual could pay the tax and after having paid the tax liability, together with the interest and penalties, file a refund claim. A refund claim is a prerequisite to getting into federal court to contest a tax liability.

The refund claim must be submitted to Internal Revenue Service, giving them a period of six months in which to reconsider its position. You set forth in the refund claim all of the bases for the contest, and the Internal Revenue Service can either do nothing or can refuse to honor the refund claim.

If they send a notice that they reject the refund claim, they'll do so by certified mail; and the individual has two years from the date of that notice by certified mail in which to file a petition in the federal courts.

The revenue service if they do nothing, then the individual must wait for the six-month period. After the expiration of the six-month period, then the individual is free to file his petition and must file within two years after the expiration of the six-month period.

Hearing Transcript at 99-100.

In the present case, it is clear that the individual has not chosen to pursue his legal disagreements with the IRS through the refund process, but through actions that require the IRS to bring an enforcement effort against him. By failing to submit individual income tax returns in 1992, 1993 and 1994, the individual has violated the federal income tax filing requirements specified by the IRS and has required the IRS to initiate enforcement efforts to bring him into compliance with the federal tax law. His actions in this regard clearly constitute unusual conduct under Criterion L.

B. The Requirement to Provide Information for Tax Withholding

Another basic requirement of the IRC and its regulations involves the submission of a form W-4 to permit the withholding of income by employers for tax purposes. Mr. XXXXXXX described this obligation as follows:

Every individual who is an employee of a corporation is obligated to furnish to the employer a form W-4 giving the employer such information as he may need for the withholding of tax. The employer in turn furnishes a form W-2 at the end of the tax year indicating the amount of earnings, the amount of tax withheld, and the pertinent information for the filing of a tax return.

Hearing Transcript at 90-91. Form W-8 (or a substitute form containing substantially the same language) may be submitted instead of a form W-4 by an individual who needs to inform his employer that he or she is a "nonresident alien individual, foreign entity, or exempt foreign person" who is not subject to certain U.S. information return reporting or backup withholding rules. In the present instance, the individual deliberately created and submitted to his employer a substitute Form W-8 in which he described himself as an "American, Non-Resident Alien Outside the District of Columbia, i.e., the United States, USC 26 7701(a)(9) and stated that he was not subject to tax withholding.<3>As discussed above, the individual contends that the applicable tax law governing employee withholding should be read to include only federal, state and District of Columbia employees, and that he was therefore entitled to submit his substitute Form W-8 declaring himself to be exempt from federal withholding. This clearly is not the position of the IRS. At the request of the DOE/XXXXX, Mr. XXXXX reviewed the substitute Form W-8 submitted by the individual. He finds that it was prepared by someone seeking to challenge the IRS position concerning withholding of income. Hearing Transcript at 96. I agree with this conclusion. Mr. XXXXX also states that the individual's conduct in submitting this form to his employer and thereby ending his tax withholding, when combined with his failure to file tax returns, could constitute a felony.

The [individual's] form W-8 could, however, rise to the status of a felony if it's combined with failure to file a return; and there have been a lot of cases saying that a false W-4, along with failure to file a return, gets you into [IRC Section] 7201 which is a felony, yes.

Hearing Transcript at 97.

As with his failure to submit tax returns, the individual has taken actions with respect to his federal income tax withholding that require the IRS to initiate enforcement efforts to bring him into compliance with the federal tax laws. I concur in the findings of the Notification Letter that the individual's actions are in conflict with well known sections of the Internal Revenue Code and may constitute criminal violations. The final determination concerning the individual's liability under these provisions must be left to the IRS and the courts to determine. The strong likelihood that the individual has violated these tax requirements and the fact that he is the object of IRS enforcement efforts is more than sufficient to constitute unusual conduct under Criterion L and to support the DOE/XXXXX's concerns regarding the individual's fitness for access authorization.

C. The Individual's Recent Dealings with the IRS

The individual's contacts and correspondence with the IRS concerning his federal tax obligations clearly indicate that his past actions and current positions on tax matters remain unacceptable to the IRS and are inappropriate. In a letter dated August 1, 1994, the District Director for the Internal Revenue Service requested that the individual and his wife attend a meeting with IRS personnel on August 10, 1994. The letter stated that the IRS had no record of receiving Form 1040 tax returns from them for the years 1992 and 1993, and asked them to bring signed returns to the meeting. DOE/XXXXX Exhibit 9A. The individual requested that the meeting be rescheduled, and in a letter dated February 7, 1995, an IRS Revenue Agent requested that the individual and his wife appear on February 22, 1995. The letter stated that:

Your Federal tax returns for 1992 and 1993 have not been filed. I have scheduled an appointment for you to either assist you with the filing of your delinquent returns or to receive your prepared returns.

DOE/XXXXX Exhibit 8C. In a letter dated February 16, 1995, the individual again requested that the meeting be postponed "as I will not be able to gather this information by the time that you have specified on February 22, 1995." In this letter, the individual requested that certain information be provided to him by the IRS at this meeting.

It is ... required by IRC sec. 6001 that you have a copy of the Notice that was served upon me by regulations, from the Secretary, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not I am liable for any tax under Title 26. I will also insist that a copy of the Delegation Order Number 12 and 17, relative to the preparation of returns, that will establish your authority to make any type of return for me, be provided at this meeting.

DOE/XXXXX Exhibit 8D. In a letter dated February 21, 1995, the IRS Revenue Agent rescheduled the meeting for March 8, 1995. The letter also specifically stated:

The purpose of this scheduled appointment is to assist you in the filing of your required returns or to accept your correct filed returns. The meeting is not to discuss the fact that you are required to file since that has already been established.

DOE/XXXXX Exhibit 8E. On March 7, 1995, the individual executed a written document stating that "Mr. XXXXX is authorized to present my information on my behalf of myself and/or my wife under Title 5 Section 552A." DOE Exhibit 8, p. 7. According to the individual's testimony at the Hearing, Mr. XXXXX attended the March 8, 1995 meeting on behalf of the individual. At that meeting, he requested the "particular taxing statute" that established the requirement to file a tax return. The individual then states:

And it was my position at the same time that we need to know the particular taxing statute for the tax that we are being made liable for; and during that interview, that agent refused to inform the particular taxing statute for the provisions requiring the returns, statements, and we talked about it at the meeting -- I mean he talked about it.

Hearing Transcript at 64-65. The individual states that since that time, he has continued to demand that the IRS provide him with the statutory basis for its authority to require him to file an individual income tax return. See letters dated September 5, 1995 to XXXXX, District Director, Department of the Treasury, and to Special Agent XXXXX, Internal Revenue Service. Individual Exhibits 1 and 2. In a November 1, 1995 response, Special Agent XXXXX advised the individual that his questions "may be influenced by an illegal tax protestor group" and advised him "to seek the assistance of an attorney for specific answers regarding this matter." Individual Exhibits 2.

The individual indicates that he fully intends to continue to contest the IRS in this matter through the courts and will file a federal income tax return only when the IRS changes its position or when ordered by a court to do so.

And if that [court] decision was the particular filing of a return after I had exhausted my appeals and my due process of law, that I would most definitely comply with an order of the court.

Hearing Transcript at 85. This is not an acceptable position for an individual holding a security clearance. Individuals holding DOE access authorization status must demonstrate that they can be trusted to conform to the requirements of the federal laws without the need for constant supervision or police action. An individual who will only obey legal requirements when ordered to do so by a court cannot be deemed reliable and trustworthy for purposes of access authorization.

In conclusion, the individual's actions and positions with respect to his tax obligations demonstrate a readiness to violate legal requirements that simply is not compatible with the requirements for DOE access authorization, and constitute unusual conduct under Criterion L. I find that the individual, a mature adult, clearly has taken conscious and deliberate actions that have resulted in the non-filing of federal income tax returns in 1992, 1993 and 1994, and in the non-withholding of federal taxes since April 1993. These actions appear to violate federal legal requirements and are therefore very serious matters. Moreover, he continues to require the IRS to exercise an enforcement effort against him to correct these actions.

Through these actions, the individual has exhibited behavior that strongly suggests that he is irresponsible or lacks good judgment with regard to complying with the clear requirements of the tax laws and regulations. This behavior raises serious concerns regarding his ability or willingness to comply with other legal requirements, including the regulations governing access to classified material and information. In addition, he has presented no evidence of reformation or behavioral changes that would serve to mitigate his past actions. He has not acknowledged that his actions concerning his tax obligations were irresponsible, he is not cooperating with the IRS to correct his past actions, and he has not exhibited a willingness to conform to usual standards of conduct with respect to fulfilling his tax obligations in the future.

I agree with the DOE/XXXXX that the individual's unusual conduct raises serious questions concerning his honesty, reliability and trustworthiness under Criterion L. Accordingly, I find that the individual's actions, as well as his explanations for those actions, raise a serious doubt about his ability to responsibly handle classified material and follow security regulations.

IV. CONCLUSION

In view of the criteria set forth in 10 C.F.R. Part 710, I find that restoring the individual's access authorization would endanger the common defense and security and would be inconsistent with the national interest. It is therefore my opinion that the individual's level "Q" access authorization should not be restored.

The regulations governing this proceeding provide that either the DOE's Office of Security Affairs or the individual may file a request for review of this Opinion. 10 C.F.R. § 710.28(a). The request must be filed within thirty calendar days of receipt of this Opinion. Within fifteen calendar days of filing such a request, the requesting party must file a statement specifying the issues upon which it seeks review. The other party may file a response to the statement of issues. It must do so within twenty calendar days of receipt of the statement of issues.

All submissions must be filed with the Director, Office of Hearings and Appeals, 1000 Independence Avenue, S.W., Washington, D.C. 20585-0107. In addition, a party must send a copy of each of its submissions to the other party.

Kent S. Woods

Hearing Officer

Office of Hearings and Appeals

Date: February 13, 1996

<1>/ Mr. XXXXXX heads an organization known as XXXXX. The individual describes this organization as a "First Amendment organization" and considers himself a member of the group by association. According to the individual, the organization has no membership fees. Transcript of December 14, 1995 Hearing ("Hearing Transcript") at 78.

<2>/ He also cites Section 7207 of the IRC, which provides for fines and imprisonment for "[a]ny person who willfully delivers or discloses to the Secretary any list, return ... or other document, known by him to be fraudulent or to be false as to any material matter." Response at 3, 4.

<3>/ The individual repeatedly describes himself on various signed and notarized documents as a Non-Resident Alien or "not a United States resident or citizen" or "solely an inhabitant and Citizen of the XXXXX Republic." See DOE/XXXXX Exhibits 5, 7, 8B. At the hearing, the individual stated that these statements relate solely to his various interpretations of the term "United States citizen" or "employee" as used in the IRC and regulations, and should not be construed to mean that he does not consider himself to be a citizen of the United States for other purposes, including DOE access authorization. Transcript at 43 and 48-49. I find these descriptions troubling. While these statements may not constitute renunciations of United States citizenship, his willingness to describe his citizenship status in terms that clearly would give rise to confusion and misunderstanding evidence a lack of reliability and trustworthiness on his part.