How Is A Relator's Recovery In An FCA Settlement Taxed?

This rarely litigated question was presented to the Seventh Circuit in Patrick v. Commissioner of Internal Revenue, No. 14-2190, 2015 WL 5024985, F.3d- (Aug. 26, 2015). Previously, the First Circuit, in Fresenius Medical Care Holdings, Inc. v. United States, 763 F.3d 63, 71-72 (1st Cir. 2014), answered the related question of how an FCA defendant's settlement payments should be treated for tax purposes, explaining that in the absence of a tax characterization agreement, the settlement can be deducted if the objective "economic realities" indicate that the settlement was intended to be compensatory. The Seventh Circuit recognized that its issuehow an FCA relator's settlement proceeds should be treated for tax purposes had not been addressed by that court; in fact, the...