WILLIAM MARK SCOTT VS. NJ HEALTH CARE FACILITIES FINANCING AUTHORITY (NEW JERSEY GOVERNMENT RECORDS COUNCIL) ( 2021 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4242-18T2
WILLIAM MARK SCOTT,
Appellant,
v.
NJ HEALTH CARE FACILITIES
FINANCING AUTHORITY,
Respondent,
and
DEBORAH HEART AND
LUNG CENTER,
Intervenor-Respondent.
______________________________
Argued September 29, 2020 – Decided January 13, 2021
Before Judges Gooden Brown and DeAlmeida.
On appeal from the New Jersey Government Records
Council, GRC Complaint No. 2015-256.
William Mark Scott, appellant, argued the cause pro se.
Alison Keating, Deputy Attorney General argued the
cause for respondent New Jersey Health Care Facilities
Financing Authority (Gurbir S. Grewal, Attorney
General, attorney; Donna Arons, Assistant Attorney
General, of counsel; Alison Keating, Deputy Attorney
General, on the brief).
Robert A. Mintz argued the cause for intervenor-
respondent Deborah Heart and Lung Center (McCarter
& English, LLP, attorneys; Robert A. Mintz of counsel
and on the brief; James A. Kellar, on the brief).
Gurbir S. Grewal, Attorney General, attorney for
respondent Government Records Council (Debra A.
Allen, Deputy Attorney General, on the statement in
lieu of brief).
PER CURIAM
Appellant William Mark Scott appeals from the April 30, 2019 final
agency decision of respondent Government Records Council (GRC) denying his
request under the Open Public Records Act (OPRA), N.J.S.A. 47:1A-1 to -13,
for the production of federal tax return information of respondent Deborah Heart
and Lung Center (Deborah) in the possession of respondent New Jersey Health
Care Facilities Financing Authority (HCFFA). We affirm.
I.
The following facts are derived from the record. In 1993, HCFFA, a
public authority, issued tax-exempt conduit bonds (the Bonds) for the benefit of
Deborah, a non-profit hospital. The proceeds of the Bonds were loaned to
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Deborah, which used the funds to refinance an earlier issue of bonds and to pay
for additions and renovations to its hospital facilities. The Bonds were payable
solely from payments made by Deborah to HCFFA under a loan agreement.
Deborah subsequently initiated a total return swap transaction to reduce its
interest obligation on the Bonds. HCFFA was not a party to that secondary
market transaction.
In 2010, the Internal Revenue Service (IRS) initiated an examination of
the total return swap transaction and the impact, if any, it had on the federal tax
treatment of interest on the Bonds. During the examination, HCFFA provided
the IRS with copies of documents relating to the issuance of the Bonds. In
addition, HCFFA became aware of the total return swap transaction, and
solicited documents from Deborah related to that transaction, which it forwarded
to the IRS. Because HCFFA was not a party to the total return swap transaction,
all of the documents it provided to the IRS concerning the transaction came from
Deborah. The IRS, Deborah, and HCFFA eventually executed a settlement
agreement that brought the examination to a conclusion.
On July 30, 2015, Scott filed an OPRA request with the custodian of
records for HCFFA for "[a]ll correspondence (including information document
requests) and agreements between [HCFFA] and the [IRS] concerning an IRS
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examination of, and negotiation or settlement of the examination dispute relating
to" the Bonds.
On August 4, 2015, the HCFFA custodian of records denied Scott's
request pursuant to N.J.S.A. 47:1A-9(a), which prohibits the disclosure of
documents that are confidential under any other statute. The custodian
determined that the requested information contained Deborah's federal tax return
information protected from disclosure under 26 U.S.C.A. § 6103 (Section 6103).
On August 5, 2015, Scott filed a denial of access complaint with the GRC.
He argued that the HCFFA custodian provided an insufficient explanation for
the denial of his public records request. In addition, he argued that Section 6103
is not applicable to the records he requested because an IRS publication states
that HCFFA is treated as the taxpayer for purposes of the examination of the
Bonds. Thus, Scott argued, all correspondence between the IRS and HCFFA
related to the examination, including documents obtained from Deborah, are the
tax records of HCFFA, not of Deborah. Scott argued that Section 6103 does not
prohibit HCFFA from disclosing its own tax records.
In addition, Scott argued that even if the requested records contain
Deborah's federal tax return information, Section 6103 does not prohibit
production of those records by HCFFA. According to Scott, Section 6103
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prohibits disclosure of tax return information by three categories of persons,
none of which is applicable to HCFFA and its employees.
Before the GRC, the HCFFA custodian compiled a list of records
responsive to Scott's request and the basis for denying their production . Those
records include legal documents related to the issuance of the Bonds, rebate
reports, detailed responses to IRS inquiries, a certificate of non-arbitrage and
other tax matters, lease agreements, the total return swap letter agreement and
tender offer, redemption notices, IRS extension letters, and various
confirmations, certificates, and letters relating to the total return swap
transaction. HCFFA argued that despite it being considered the taxpayer by the
IRS during the examination, the records Scott seeks are the de facto tax records
of Deborah due to the conduit nature of the Bonds and role the authority played
in the examination. In addition, HCFFA argued that the definition of tax return
information in Section 6103 is broad and the prohibition on disclosure applies
to it and its employees. Deborah moved to intervene before the GRC, seeking
to make arguments that substantively parallel those of HCFFA.
On April 30, 2019, the GRC issued its final agency decision upholding
HCFFA's denial of Scott's records request. As an initial matter, the GRC granted
Deborah's motion to intervene. On Scott's substantive claims, the GRC found
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that the HCFFA custodian provided a sufficient response to his request by citing
the statutory basis for the denial of access. In addition, the GRC concluded that
the HCFFA custodian did not unlawfully deny Scott access to the records he
requested because those records contained Deborah's tax return information
within the meaning of Section 6103, which applied to HCFFA and its
employees. Thus, the GRC concluded, production of those records was properly
denied under N.J.S.A. 47:1A-9(a).
This appeal follows. Scott raises the following arguments.
POINT I
A DE NOVO STANDARD OF REVIEW APPLIES.
POINT II
THE GOVERNMENT RECORD[S] COUN[CIL'S]
DETERMINATION IS PROFOUNDLY WRONG.
POINT III
COPIES OF RECORDS SENT TO THE I.R.S. ARE
NOT RETURNS OR RETURN INFORMATION.
POINT IV
THE CUSTODIAN MAY DISCLOSE RECORDS THE
AUTHORITY RECEIVED FROM THE I.R.S.
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POINT V
DISCLOSURE IS NOT SUBJECT TO A QUALIFIED
PRIVILEGE.
II.
Our review of an administrative agency's final decision is limited.
Kadonsky v. Lee, 452 N.J. Super. 198, 201-02 (App. Div. 2017) (citing In re
Stallworth, 208 N.J. 182, 194 (2011)). "We will not reverse an agency's
judgment unless we find the decision to be 'arbitrary, capricious, or
unreasonable, or [] not supported by substantial credible evidence in the record
as a whole.'" Id. at 202 (quoting Stallworth, 208 N.J. at 194). However,
"determinations about the applicability of OPRA and its exemptions are legal
conclusions" subject to de novo review. In re N.J. Firemen's Ass'n, 230 N.J.
258, 273-74 (2017) (citing O'Shea v. Twp. of W. Milford, 410 N.J. Super. 371,
379 (App. Div. 2009); Asbury Park Press v. Cty. of Monmouth, 406 N.J. Super.
1, 6 (App. Div. 2009), aff'd o.b., 201 N.J. 5 (2010)). "As always, our primary
'objective [in] statutory interpretation is to discern and effectuate the inten t of
the Legislature.'" Id. at 274 (quoting Murray v. Plainfield Rescue Squad, 210
N.J. 581, 592 (2012)).
"The purpose of OPRA is to maximize public knowledge about public
affairs in order to ensure an informed citizenry and to minimize the evils
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inherent in a secluded process." O'Shea, 410 N.J. Super. at 379 (quoting Times
of Trenton Publ'g Corp. v. Lafayette Yard Community Dev. Corp., 183 N.J. 519,
535 (2005) (internal quotations omitted)). Accordingly, the statute provides that
"government records shall be readily accessible for inspection, copying, or
examination . . . with certain exceptions, for the protection of the public interest
. . . ." N.J.S.A. 47:1A-1.
The present appeal turns on the parameters of one of the statutory
exceptions. A "[g]overnment record" includes
any paper . . . document . . . data processed or image
processed document, information stored or maintained
electronically . . . or any copy thereof, that has been
made, maintained or kept on file in the course of his or
its official business by any officer . . . agency or
authority of the State . . . or that has been received in
the course of his or its official business by such officer
. . . agency, or authority . . . .
[N.J.S.A. 47:1A-1.1.]
However, N.J.S.A. 47:1A-9(a) provides that OPRA "shall not abrogate any
exemption of a public record or government record from public access
heretofore made pursuant to . . . any federal law . . . ."
Section 6103, a federal law, provides in relevant part that
(a) . . . Returns and return information shall be
confidential, and except as authorized by this title –
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....
(2) no officer or employee of any State, any local law
enforcement agency receiving information under
section (i)(1)(C) or (7)(A), any local child support
enforcement agency, or any local agency administering
a program listed in subsection (l)(7)(D) who had or had
access to returns or return information under this
section or section 6104 (c) . . .
....
shall disclose any return or return information obtained
by him in any manner in connection with his service as
such an officer or an employee or otherwise under this
provision of this section.
[26 U.S.C.A. § 6103(a).]
"Return information" is defined broadly as
(A) a taxpayer's identity, the nature, source, or
amount of his income, payments, receipts, deductions,
exemptions, credits, assets, liabilities, net worth, tax
liability, tax withheld, deficiencies, overassessments,
or tax payments, whether the taxpayer's return was, is
being, or will be examined or subject to other
investigation or processing, or any other data, received
by, recorded by, prepared by, furnished to, or collected
by the Secretary with respect to a return or with respect
to the determination of the existence, or possible
existence, of liability (or the amount thereof) of any
person under this title for any tax, penalty, interest,
fine, forfeiture, or other imposition, or offense . . . .
....
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(D) any agreement under section 7121, or any similar
agreement, and any background information related to
such an agreement or request for such an agreement.
[26 U.S.C.A. § 6103(b)(2).]
Section 7121 is titled "Closing agreements" which are defined as "agreement[s]
in writing with any person relating to the liability of such person . . . in respect
of any internal revenue tax for any taxable period." 26 U.S.C.A. § 7121(a).
Scott disputes that the information he requested falls within the broad
definition of return information under Section 6103, an argument he did not raise
before the GRC. In addition, he reiterates his argument that: (1) if the
information he requests is return information, it is the return information of
HCFFA, not Deborah; and (2) alternatively, if information he requests is the
return information of Deborah, Section 6103 does not preclude HCFFA from
disclosing that information.
Having carefully reviewed the record in light of the unequivocal language
of Section 6103, we conclude that Scott's arguments are without merit. We
briefly address his arguments in turn.
"'[R]eturn information' is defined broadly by the statute to include almost
any information compiled by the IRS in connection with its determination of a
taxpayer's liability." Lehrfeld v. Richardson, 954 F. Supp. 9, 13 (D.D.C. 1996).
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For example, the "broad definition . . . is sufficient to include documents
produced during an initial IRS investigation of an organization seeking tax-
exempt status." Ibid. See also Church of Scientology of Cal. v. IRS, 484 U.S.
9, 14 (1987) ("[A]s a practical matter, 'return information' might include the
report of an audit examination, internal IRS correspondence concerning a
taxpayer's claim, or a notice of deficiency by the IRS . . . ."); Belisle v. Comm'r,
462 F. Supp. 460, 462 (W.D. Okla. 1978) (holding that IRS investigation results
of a tax-exempt corporation were confidential under Section 6103); Tax
Analysts v. IRS, 53 F. Supp. 2d 449 (D.D.C. 1999) (holding that closing
agreements constitute "return information" not subject to disclosure).
The information Scott seeks was exchanged between HCFFA and the IRS
during an examination of whether the total return swap transaction had an impact
on the tax-exempt status of interest paid pursuant to the Bonds. This information
is "data, received by, recorded by, prepared by, furnished to, or collected by the
Secretary with respect to . . . the determination of the existence, or possible
existence, of liability . . . of any person . . . for any tax," 26 U.S.C.A. § 6103,
and falls within the broad scope of the statute. The same is true for the closing
agreement that the IRS, HCFFA, and Deborah ultimately executed to conclude
the examination, which is protected from disclosure by Section 6103, as is the
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"background information related to such an agreement or request for such an
agreement . . . ." 26 U.S.C.A. § 6103(b)(2)(D). Scott's cabined interpretation
of Section 6103 does not comport with its unequivocal terms or the evident
intention of Congress to provide broad protection to taxpayers who produce
information to the IRS to facilitate that agency's determination of tax liabilities
and to the background information those taxpayers retain after an IRS
examination that resulted in a closing agreement.1
Nor do we agree with Scott's argument that because HCFFA is considered
the taxpayer by the IRS during its examination of the tax-exempt status of the
Bonds all of the information HCFFA received from Deborah and forwarded to
the IRS is transformed into HCFFA's return information. Because HCFFA was
the entity that issued the Bonds the IRS considered it responsible for obtaining
the necessary information from Deborah, which was a party to the total return
swap transaction, to determine whether the tax-exempt status of the Bonds had
1
We acknowledge Deborah's argument that we should not consider Scott's
contention that the information he requested is not return information because
he failed to raise that argument before the GRC. See N.J. Div. of Youth &
Family Servs. v. M.C. III, 201 N.J. 328, 339 (2010) ("We have often stated that
issues not raised below will ordinarily not be considered on appeal unless they
are jurisdictional in nature or substantially implicate the public interest.").
Given that the Legislature has recognized the public interest in access to
government records, we address Scott's argument to provide a complete analysis
of whether the information he requests is exempt from disclosure.
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been altered by that transaction. Scott cites no legal authority, and we can find
none, holding that HCFFA's role as a conduit to the IRS for Deborah's return
information converted Deborah's return information into the return information
of HCFFA. There is no evident argument that such an interpretation of Section
6103 would advance the public policy of encouraging the production of
documents containing tax information by entities whose financial transactions
are examined by the IRS. To the contrary, such an interpretation of Section
6103 would impede cooperation among the issuers of government bonds and the
beneficiaries of those instruments during an IRS examination.
In support of his argument, Scott relies on a IRS publication that states
that "[t]he issuer of the municipal debt is treated as the 'taxpayer' throughout the
examination process." As a threshold matter, the publication appears to apply
to municipal debt. HCFFA is not a municipality, but a State authority. Scott
does not address this discrepancy or cite to legal authority for the proposition
that debt issued by a State authority is considered municipal debt by the IRS.
Even if we were to assume that the Bonds are considered municipal debt for
purposes of the publication, Scott cites to no legal precedent supporting the
notion that the IRS can abrogate the statutory protection afforded to Deborah in
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Section 6103 through issuance of a publication that, in effect, transforms
Deborah's tax return information into HCFFA's tax return information.
Nor would an erosion of the protections afforded by Section 6103 in this
fashion comport with the statute's overall structure. The IRS examination of the
total return swap transaction was directed at Deborah, which participated in the
transaction, and not HCFFA, which was unaware of the transaction until after
the examination commenced. The documents at issue, which were obtained
from Deborah's files, contain Deborah's tax information and the details of its
financial transaction, not the sensitive information of the HCFFA. The
protections provided by Section 6103 would be considerably weakened if the
IRS could abrogate the statute's confidentiality protections merely by requiring
a third party tangentially related to a financial transaction to collect and forward
information from other taxpayers involved in the transaction. We do not see in
Section 6103 any provision suggesting the confidentiality of a taxpayer's return
information is subject to such ready abrogation by the IRS.
Finally, we disagree with Scott's strained interpretation of Section 6103's
applicability to HCFFA and its employees. The statute plainly provides that "no
officer or employee of any State . . . shall disclose any . . . return information
obtained by him in any manner in connection with his service as such an officer
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or an employee or otherwise under the provisions of this section." 26 U.S.C.A.
§6103(a)(2). To advance his narrow interpretation of Section 6103, Scott relies
on provisions of the statute that apply to officers and employees of local law
enforcement agencies, local child support enforcement agencies, and local
agencies administering certain federal programs. It is evident that those
provisions do not apply to HCFFA or it employees or comport with the statute's
overall purpose of providing protection to taxpayers.
To the extent we have not specifically addressed any of Scott's remaining
arguments, we conclude they lack sufficient merit to warrant discussion in a
written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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