9th Circuit Says $27M Whistle-Blower Award is Taxed as Ordinary Income

July 26th, 2012 by Qui Tam

James Alderson, a former chief financial officer for a Montana hospital, received a $27 million benefit by blowing the whistle on his former employer’s accounting fraud.

A federal appeals court ruled that the reward, since filing the qui tam suit under the Federal False Claims Act, is taxed as ordinary income and not under the lower capital gains tax rate.

The San Francisco-based 9th U.S. Circuit Court of Appeals held that the bounty Alderson received after he persuaded the feds to intervene in his case against HCA Healthcare and a $631 million settlement resulted, wasn’t a payment for the sale of property, to which capital gains tax typically does apply.

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