WASHINGTON -- Tax controversy lawyer Brad Waterman moved closer this week to forcing the Internal Revenue Service to release documents related to a practitioner misconduct charge it considering filing against him in a tax dispute over whether education bonds should remain tax-exempt in a loan swap.
The U.S. Court of Appeals for the District of Columbia ordered a district judge to review four documents totaling 16 pages in an IRS Office of Professional Responsibility case file for possible release under the federal Freedom of Information Act.
Although the IRS took no action against Waterman, the Office of Professional Responsibility informed him that the records would be kept for 25 years and that he could submit a response as part of the file.
Waterman won the loan swap tax dispute in October 2015 when the IRS Office of Appeals found the loan swap did not violate Treasury regulations, overruling an audit determination.
The federal appellate court also handed Waterman a victory in an unpublished decision Tuesday in his FOIA case by overruling a summary judgment from January 2018 by U.S. District Judge Richard Leon.
Waterman filed the lawsuit in federal district court because the IRS would not release all of the pages in the referral to the IRS Office of Professional Responsibility.
Judge Leon denied Waterman’s request for an in camera review of the documents to determine if any of the withheld pages can be segregated as factual data that is publicly releasable as opposed to deliberative information that is protected from public release. An in camera review means that a judge looks at the information privately in his or her chambers.
The district judge accepted the IRS’s argument that all of the withheld file pages were protected under Exemption 5, known as the “deliberative process privilege” which shields records or portions of records that would reveal the decision making processes of government agencies.
“Because we agree with Waterman that the district court did not make a sufficient finding on segregability, we remand on that issue without reaching his other arguments,” the three-judge appellate court panel wrote.
The appellate decision noted, “The district court’s opinion granting summary judgment mentions segregability only once, and then only in a passing description of an IRS declaration.”
Waterman’s lawyers, David Vladeck and Stephanie Glaberson of the Georgetown Law School Civil Litigation Clinic, had asked the three-judge panel led by Chief Judge Merrick Garland to conduct their own in camera review of the withheld pages.
Waterman declined comment on the ruling because the litigation is still pending, but the attorney who presented oral arguments on his behalf described the appellate decision as “the right result.”
“We’ve always asserted that the factual allegations that are contained in the documents are segregable and should be released,” said Glaberson.
The IRS did not immediately respond to a request for comment.
Waterman learned of the referral in September 2014 in a letter he received from the IRS’s Office of Professional Responsibility that 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 the 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.
