A tax lawyer enlists a FOIA expert in a muni-related case
WASHINGTON — Muni tax controversy lawyer Brad Waterman is renewing his fight with the Internal Revenue Service over his right to obtain documents pertaining to an IRS agent's misconduct allegation levied against him over a muni bond case.
He has enlisted David Vladeck as his new legal representative, a Freedom of Information Act expert who years ago won a seminal Freedom of Information Act ruling involving a former United Nations secretary general.
They asked the U.S. Court of Appeals for the District of Columbia last month to overturn a lower court ruling that sided with the IRS, saying it could withhold the documents from him.
The "suspected practitioner misconduct" allegation made against Waterman by an IRS revenue agent stems from a tax-exempt education loan swapping case he successfully defended for the New Hampshire Health and Education Facilities Authority.
The IRS has not yet filed a response to the appeal and did not respond to a request for comment. A court hearing is not expected until the fall.
Vladeck is one of the nation’s leading litigators in FOIA cases who 25 years ago argued for release of a Justice Department report involving the World War II background of former United Nations Secretary General Kurt Waldheim.
The connection between the two FOIA cases, according to Vladeck, is that a federal district court judge in January denied Waterman access to part of his IRS case file by using an incorrect interpretation of the Waldheim ruling, known as Mapother v. Department of Justice.
“Our argument here is that the district judge simply misread Waldheim, the Mapother case,” Vladeck said in an interview. “In a situation like this you want to look at the documents and make a determination if there are severable factual portions because Mr. Waterman doesn’t have much of a clue as to what the folks at the IRS thought he did wrong. He’s just trying to get a sense of what’s going on.”
Waterman was hired in the spring of 2012 by the New Hampshire Health and Education Facilities Authority to represent it before the IRS’s Office of Tax-Exempt Bonds in the Voluntary Closing Agreement Program.
The New Hampshire Authority agreed to pay $1.647 million under VCAP but refused to agree to a draft document that included an acknowledgment that the loan swap was illegal, which Waterman and the state authority did not believe was the case.
The state authority withdrew from VCAP process in June 2013 and, as a result, was subjected to an IRS audit that found the bonds involved in the loan swap to be taxable.
That audit determination, however, was overruled in October 2015 by the IRS Office of Appeals, which found that loan swapping did not violate Treasury regulations.
Waterman learned of the misconduct allegation in September 2014 when he received a letter from the IRS’s Office of Professional Responsibility informing the allegation had been referred to it six months earlier, soon after he appealed the audit determination involving the New Hampshire authority.
"Apparently what they sought to do was punish me because of my client's decision to withdraw from the VCAP," Waterman said in an interview.
The audit involved $135.4 million of adjustable rate education loan revenue bonds NHHEFA issued in 2011 and swapped with the New Hampshire Higher Education Loan Corp. for student loans.
Although the IRS Office of Professional Responsibility took no action against Waterman in connection with the misconduct allegation, it informed him that a record of the allegation would be kept for 25 years in a file where it could be revisited in future OPR proceedings.
Waterman was told he could submit a response that would become part of that file. He submitted a FOIA request to find out why the allegation was made, but the IRS only released a portion of the file.
Waterman said he tracked down Vladeck to determine if he would handle an appeal because of the potential harm the district court ruling might have in future FOIA cases.
“I think it’s an important case,” Vladeck said. “It seems to me that if you are accused of wrongdoing, even if there’s no sanction immediately, but there could be down the road, you have a right, to at least understand the basic claim against you. And the IRS has basically played fast and loose here.”
Vladeck served for many years as an attorney for Public Citizen, the consumer advocacy group founded by Ralph Nader. He’s also worked on the government side, serving as director of the bureau of consumer protection for the Federal Trade Commission from 2009 to 2012 during the Obama administration.
Vladeck is currently a law professor at Georgetown University and he’s working with another attorney at the Georgetown Law Center Civil Litigation Clinic, Stephanie Glaberson, in representing Waterman.
In the Waldheim case, Vladeck represented a former federal intelligence agent and a journalist who sued for the public release of a Justice Department report on Waldheim’s participation in Nazi-sponsored persecution during World War II.
In that 1993 ruling, the U.S. Court of Appeals for the District of Columbia decided that factual information in the Waldheim report should be released although material related to government deliberations should be withheld.
In Waterman's FOIA lawsuit, U.S. District Judge Richard Leon dismissed it in a summary judgment for the IRS in January citing, in part, the Mapother ruling involving the Waldheim report.
Vladeck argues that the district judge should have reviewed the IRS documents in his chambers – what’s referred to as “in camera” – and decided if there’s factual material that can be publicly released.
“This case keys up for the court some issues it really hasn’t spent much time on in the last decade or so, which is when should they examine documents in making FOIA decisions,” Vladeck said. “There will be an interesting written decision in this case regardless of which side wins.”