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.
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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.


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