## Facts

- Emmanuel L. Roco, an accountant and former employee of New York University Medical Center (NYUMC), filed a qui tam action under the False Claims Act (FCA) alleging NYUMC caused an overpayment of federal funds.
- NYUMC settled with the United States for $15.5 million.
- In 1997, the United States paid Roco $1,568,087 as his statutory relator’s share of the settlement proceeds; the payment did not arise from any preexisting obligation owed to him.
- Roco did not include the $1,568,087 on his 1997 federal income tax return.
- The IRS issued a notice of deficiency determining a $610,446 income tax deficiency for 1997 and a $122,093 accuracy-related penalty under I.R.C. § 6662(a).
- Roco sought redetermination in the Tax Court, arguing the relator payment was not gross income and that taxing it would deter whistleblowers.

## Issues

1. Whether the $1,568,087 FCA qui tam relator payment received in 1997 was includable in gross income under I.R.C. § 61(a).
2. Whether Roco was liable for the accuracy-related penalty under I.R.C. § 6662(a) for 1997.

## Decision

- The Tax Court held the relator payment was includable in gross income under I.R.C. § 61(a) as a taxable reward.
- The court rejected exclusion theories, including characterization as personal-injury damages under I.R.C. § 104(a)(2) or as a nontaxable gift under I.R.C. § 102.
- The court sustained the I.R.C. § 6662(a) accuracy-related penalty for substantial understatement.
- The court found Roco lacked reasonable cause and did not act in good faith under I.R.C. § 6664(c), given his accounting background and decision to omit the payment entirely.

## Legal Principles

- I.R.C. § 61(a) reaches all accessions to wealth unless a specific statutory exclusion applies; a qui tam relator’s share is taxable as a reward for information and assistance leading to government recovery.
- I.R.C. § 104(a)(2) does not exclude a relator’s share because it is not damages paid on account of personal physical injuries or sickness.
- Statutory incentive payments made pursuant to the FCA are not “gifts” excludable under I.R.C. § 102 because they lack donative intent and arise from a compensation scheme.
- Policy arguments about encouraging whistleblowers cannot create a tax exclusion absent congressional action.
- A complete omission of a large includable payment can constitute a substantial understatement under I.R.C. § 6662(d), and penalty relief requires proof of reasonable cause and good faith under I.R.C. § 6664(c), assessed in light of the taxpayer’s sophistication and conduct.

## Conclusion

The Tax Court ruled that an FCA qui tam relator’s share is ordinary taxable income under I.R.C. § 61(a) and that an accountant-taxpayer who omitted the payment from the return was liable for an accuracy-related penalty under I.R.C. § 6662(a) due to a substantial understatement without reasonable cause or good faith.


Roco v. Commissioner, 121 T.C. 160 (2003)