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IRS settles lawsuit brought by Werner Erhard.

WASHINGTON--(BUSINESS WIRE)--Sept. 11, 1996--The Internal Revenue Service today settled for $200,000 in a damage suit Werner Erhard brought against the IRS for false statements IRS spokesmen made to the press about his tax information in April, 1991.

Between April 9 and April 15, 1991, it was widely reported in the news media that: IRS spokesmen said that Werner Erhard owed millions of dollars in back taxes; the IRS believed Erhard was transferring assets out of the country; and the IRS was suing Erhard. The impression the IRS spokesmen left in the statements they made to the media was that Erhard was a tax cheat who refused to pay his taxes that were lawfully due. Erhard has never refused to pay a lawfully due tax and has not refused to pay millions in back taxes.

Erhard alleged that not only did the IRS spokesmen illegally disclose tax return information IRS employees are required by law not to disclose, but that the statements the spokesmen made to the media were false. Erhard has not ever owed millions of dollars in back taxes, nor has he ever transferred assets out of the U.S. to evade the payment of taxes, and the IRS has never sued Erhard. Erhard has not been delinquent in the payment of his taxes, and the IRS has never sued Erhard because he had failed in any tax-paying obligation.

Erhard also claimed that the IRS spokesmen made statements intentionally and with gross indifference to the damage they could do in disclosing inaccurate and misleading information about a taxpayer. Erhard believed that they were part of a "get Erhard" campaign among some IRS personnel in Northern California. Also during the case, the IRS spokesmen admitted that statements attributed to them about Erhard's supposed tax liability were false, but that they did not ask the newspapers to correct the statements. In addition, during the pre-trial phase of the case, the Court imposed sanctions against the government of $9,000.

The background of Erhard's damage suit is that as thousands of taxpayers do each year, Erhard had challenged in the U.S. Tax Court adjustments the IRS had made in the audit of his 1981, 1982 and 1983 tax returns.

The IRS disallowed deductions for depreciation on business property and interest Erhard had fully disclosed on the returns, prepared by a then-big eight accounting firm based on their certified audit of Erhard's business and on the advice of respected tax counsel at one of the country's leading law firms.

After a trial, but before the Tax Court rendered a decision, in April 1991, the IRS chose to collect the taxes that might become due from Erhard if the Tax Court upheld the IRS.

When the Tax Court made its final decision, it found partially for the IRS, although in an amount substantially less than the IRS was seeking and partially for Erhard. The Court said that Erhard had relied on competent tax professionals and was not subject to any civil penalties. Erhard paid the taxes the Tax Court ultimately found were due.

Usually a wrongful disclosure lawsuit is brought because confidential tax return information is made public; however, in Erhard's lawsuit that was not the case. Erhard brought the suit solely because false information was made public. If the IRS had disclosed information that was truthful, Erhard said, he might have objected to the invasion of privacy, but he would not have brought a lawsuit.

By paying Erhard damages to settle his lawsuit against them, Erhard said that the IRS had taken a significant step to set the record straight regarding the false statements that had been made against him.

Erhard was represented by Michael I. Saltzman of Baker & McKenzie, New York.

CONTACT: Morrison Cohen Singer & Weinstein

Martin Leaf, 212/735-8600
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Publication:Business Wire
Date:Sep 11, 1996
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