Civil Rights Tax Relief Act

Washington, D.C. November 15, 2017. Senator Charles Grassley (R-IA) has put forth two amendments to the Tax Cuts and Jobs Bill that are important to whistleblowers.

The major amendment addresses an issue that has been the subject of previous posts, defining the term “collected proceeds” in I.R.C. section 7623(b).  The IRS and Department of Justice have taken the position whistleblowers who report criminal tax frauds, such as the numerous crimes committed by the largest Swiss banks, cannot obtain a whistleblower reward. They have argued that whistleblower rewards should not be paid on any criminal fines. Continue Reading Proposed Grassley Amendment Important for Whistleblowers

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On June 25, 2009, Representatives John Lewis (D-GA) and James Sensenbrenner (R-WI) reintroduced the Civil Rights Tax Relief Act of 2009 (CRTRA).  It is now numbered as H.R. 3035.  On the same day, Senators Jeff Bingaman (D-NM) and Susan Collins (R-ME) reintroduced the CRTRA in the Senate, where it is now known as S. 1360.  The Senate and House bills are identical. They differ from last Congress’s CRTRA only in the effective date. The bill would provide that compensatory damages awarded in whistleblower and other cases not involving physical injuries would be excluded from the definition of "income" for income tax purposes.  The bill would also permit whistleblowers and civil rights plaintiffs to pay taxes based on the tax rates of the years when the wages would have been earned but for the unlawful discrimination.  The National Employment Lawyers Association (NELA) provides more information about these bills. NELA also has an Action Page from which you can ask your legislators to co-sponsor CRTRA.

When whistleblowers win their cases, it is often years after they got fired.  When a judge adds up all the years of back pay, the whistleblower will then have to pay taxes from a higher tax bracket. Whistleblowers can end up getting less than what would have happened had they never been fired.

Last month, the federal Third Circuit Court of Appeals recognized this problem and allowed a court to increase a plaintiff’s award to compensate for the negative tax consequence of getting back pay in a lump sum.  The decision is Eshelman v. Agere Systems, Inc., No. 05-4895 (3d Cir. Jan. 30, 2009). The decision highlights the need for the Civil Rights Tax Relief Act.

Continue Reading Third Circuit allows compensation for tax consequences