Whistle-Blower Awards Are Ordinary Income, Tax Court Says

A whistle-blower’s $6.8 million in awards must be taxed as ordinary income, a U.S. Tax Court judge ruled, rejecting arguments that the money should be recognized as capital gains and subject to a lower rate.

Craig Patrick, a former reimbursement manager for California medical device-maker Kyphon Inc., helped win the recovery of tens of millions of dollars for the U.S. from an alleged Medicare fraud and his efforts “are to be applauded and were rewarded,” Judge Diane Kroupa wrote in her ruling yesterday. “Rewards, however, are treated as ordinary income” and “subject to tax as such.”