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Getty Taxes led to Glenn Beck Boston Marathon libel settlement fight

A tax dispute triggered a recent fight over the financial settlement involving conservative commentator Glenn Beck and a Saudi Arabian student he repeatedly accused of involvement in the deadly 2013 Boston Marathon bombings.

Last week, a lawyer for Saudi student Abdulrahman Alharbi asked U.S. District Court Judge Patti Saris to reopen the settled lawsuit, alleging that Beck or his affiliated companies breached the settlement.

Details of the alleged breach were filed under seal, but POLITICO obtained a transcript of a hearing Monday where lawyers made clear the dispute was about the defendants in the case sending the Internal Revenue Service 30 percent of what Alharbi was owed.

Saris ordered the amount Alharbi was due deleted from the official transcript, but it appeared that the funds were to be paid by Premiere Networks, a division of radio giant iHeart Media and the syndicator of Beck's radio show.

The tax-withholding dispute clearly upset Saris, who accused the defendants in the case of "pulling a quick one." The judge pronounced herself "annoyed" and said the issue should have been worked out by the parties when they cut the confidential deal to end the case.

"When it wasn't agreed upon, why didn't you come to me? This is a mess, mess," Saris said. "It was too late for me to do anything. I'm not going to make them pay over and above....I just don't think it was—let me just throw this out here—wise, pragmatic lawyering to have such a major issue outstanding without coming to me before it was a fait accompli. It was like, I hate to say, pulling a quick one."

An attorney for Premiere, Michael Grygiel, said it was clear that the payment is subject to tax. In 1996, Congress changed the law to expand the categories of legal settlements subject to taxation.

"Your honor, we weren't pulling a quick one. We were complying with our withholding obligations under the law," Grygiel said.

However, Saris said she wasn't sure about that and she threatened to assess attorneys fees and "perhaps punitive damages" against Premiere if she finds that the firm breached the agreement.

Alharbi filed the suit in federal court in Boston 2014, claiming that Beck and several related companies libeled him by falsely branding him as a "money man" for the marathon bombings. Federal officials cleared Alharbi, although he was apparently briefly placed on and then removed from a U.S. terrorism watchlist after the bombings.

Peter Haley, representing Alharbi pro bono, said his firm Nelson Mullins looked at the law and believed it could receive the full payment and transfer it to Alharbi "without deduction" of U.S. taxes.

Grygiel said his firm offered to pay the money in full to Haley's firm if it agreed that it would be responsible for any tax payments due, but Haley said his firm was not willing to make such a pledge given the pro bono nature of the case.

"We don't care who we paid the money to, but the U.S. government under law gets its chunk of the settlement payment," Grygiel said.

Haley said his client was expecting to leave the U.S. in the next 30 days. It's unclear whether Alharbi would be considered a U.S. resident for tax purposes or whether that would affect the withholding.

Saris said Alharbi is free to try to recover the tax payment from the IRS and, if he can't do so and believes Premiere wrongfully withheld it, can file a new suit in front of her to get the money plus related legal fees.

CORRECTION (Wednesday, 9:52 P.M.): An earlier version of this post misstated the name of Alharbi's law firm.