U.S. Can Tax Whistle-Blower’s Take as Income

     (CN) – A whistle-blower is not eligible for a tax refund on his share of the U.S. government’s $631 million settlement with an alleged Medicare fraudster, the 9th Circuit ruled.
     James Alderson was a chief financial officer for a Montana hospital in 1990 when Quorum Health Group took over.
     He allegedly refused when the management company asked him to prepare two sets of books, and Quorum fired him soon after.
     Alderson then embarked on a decade-long quest to implicate the company of Medicare fraud, and in 2003 collected more than $27 million from the two settlements that Quorum entered into with the federal government.
     After Alderson distributed the money between himself, his wife and his children, all six family members reported their shares of the award as ordinary income.
     Four years later, the family labeled the money as a capital gain in amended returns and sought some $5 million in refunds.
     The Internal Revenue Service denied the requests, and a federal judge ruled for the government in a subsequent lawsuit.
     In a question of first impression, the Pasadena-based federal appeals court affirmed Wednesday.
     “Alderson did not ‘sell’ or ‘exchange’ his information,” Judge William Fletcher wrote for a three-judge panel. “Alderson’s right to a relator’s share was a right conferred by the False Claims Act (FCA). He provided his information to the government as a precondition for pursuing his qui tam suit, as required by the statute. If Alderson had offered simply to sell or exchange the information to the government in return for a sum of money, the government would almost certainly have refused the offer. In the unlikely event the government had accepted the offer, it would have done so based on some authority other than the FCA.”

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