Roco v. Commissioner

Roco (plaintiff), a former accountant at a medical center, brought a qui tam action under the False Claims Act alleging the center defrauded the government. The center repaid $15.5 million to settle, and roughly $1.7 million went to Roco as his relator's reward, with the settlement expressly disclaiming that it arose from any government obligation to him. Roco did not report the reward as income on his 1997 return after an IRS agent warned that a formal ruling would likely find it taxable. The Commissioner (defendant) issued a deficiency notice, and Roco petitioned the Tax Court, arguing the reward wasn't income from capital or labor and that taxing such rewards would discourage future whistleblowers.