Appellate court hears FOIA case involving muni tax dispute

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WASHINGTON — The U.S. Court of Appeals for the District of Columbia heard arguments Tuesday in a public disclosure case that began with a battle over the tax-exemption for education bonds.

Chief Judge Merrick Garland appeared unconvinced by Justice Department attorney Gretchen Wolfinger who argued on behalf of the decision by the Internal Revenue Service to release only limited information in a “suspected practitioner misconduct” case.

“Factual statements are not protected,” Garland told Wolfinger, expressing skepticism that the case qualified for an exception.

The IRS released only limited information to tax controversy lawyer Brad Waterman in response to the federal Freedom of Information Act request he made after the IRS informed him it had considered and then dropped the possibility of filing a misconduct charge against him.

“I think it went quite well,” Waterman said after the 30 minutes of oral arguments before the three-judge panel.

Waterman and the attorney who presented his case, Stephanie Glaberson of the Georgetown University Civil Litigation Clinic, were both smiling as they exited the courthouse.

Waterman successfully won the tax dispute with the IRS, but was informed that the service had considered a professional action against him for his conduct handling that case.

Waterman requested information on the allegations. When the file he received provided only limited details, he appealed to federal district court. U.S. District Judge Richard Leon dismissed Waterman’s FOIA lawsuit in a summary judgment in January.

Waterman said earlier this year he was appealing because 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.

Waterman learned of the professional conduct referral in September 2014 in a letter he received from the IRS’s Office of Professional Responsibility. It informed him the referral had been made six months earlier, shortly after he appealed an audit determination involving the New Hampshire Health and Education Facilities Authority.

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.

Waterman initially negotiated a settlement with the IRS under the Voluntary Closing Agreement Program in which the state authority would pay $1.647 million.

The draft VCAP document 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 following a review of the case by the IRS Office of Appeals, which found that loan swapping did not violate Treasury regulations.

Although the IRS Office of Professional Responsibility took no action against Waterman in connection with his handling of the tax dispute, it informed him that the records of his referral would be kept for 25 years and that he could submit a response as part of the file.

Waterman was represented before the appellate court by Glaberson and David Vladeck, one of the nation’s leading litigators in FOIA cases who collaborates with Glaberson at Georgetown where he now teaches.

“Generally these cases are trying to probe what opinions and recommendations staff had, but we know that,” Vladeck told The Bond Buyer after the hearing. “So this is the outlier case.”

The two exceptions that federal courts have allowed for not releasing all factual information have been when the records are voluminous or when disclosure of the underlying facts might lead someone to piece together what the recommendations were, Vladeck said.

In the courtroom Tuesday, Garland asked the government attorney if she had an affidavit attesting to the large volume of facts in the case. Wolfinger, the government attorney, said she did not.

“The volume of records that are winnowed and culled is illustrative but the ultimate question is whether revealing these factual accounts will reveal the deliberative process," Glaberson said in the court hallway afterwards. “And we argue that was not the case here.”

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