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Roco v. Commissioner | 121 T.C. 160 (2003)
In a qui tam action, a private individual or entity, known as a relator, brings suit on behalf of the United States government to recover fraudulently obtained money. If successful, the relator may be rewarded with all or part of the damages received. In Roco versus Commissioner, the United States Tax Court considered whether a relator’s award was taxable income.
Emmanuel Roco was a former accountant for the New York University Medical Center. After being fired from his position, Roco brought a qui tam action against the medical center, alleging that the medical center fraudulently overcharged the government for costs associated with federally sponsored research grants and government insurance reimbursements.
In nineteen ninety seven, to settle the action, the medical center repaid the government fifteen point five million dollars. As a reward for his successful qui tam action, the government gave Roco approximately one point six million dollars.
In an attempt to determine the tax treatment of the qui tam payment, Roco and his wife, a state income tax auditor, researched the tax code, related regulations, publications, and tax treatises. Roco’s wife concluded that the reward probably wasn’t taxable. Roco also requested a private letter ruling from the I R S. An I R S agent advised Roco that the I R S would probably find that the qui tam payment was taxable. Roco withdrew his request for the letter ruling.
On his nineteen ninety seven income tax return, Roco didn’t list the qui tam payment as income. The commissioner of internal revenue assessed a deficiency and an accuracy related penalty.
Roco filed a petition challenging the commissioner’s determination. Roco argued that the qui tam payment wasn’t taxable income because the reward wasn’t gain derived from capital or labor and, as a matter of policy, shouldn’t be taxable income because it could discourage private persons from acting as relators. Roco also asserted that he shouldn’t be liable for the accuracy related penalty because he made a good faith and reasonable effort to determine the taxation of the qui tam payment.
The United States Tax Court considered the case.
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