Whistleblower Recovery Is Ordinary Taxable Income

The Ninth Circuit decided a taxation case of first impression involving whether a qui tam or whistleblower recovery provides a taxable capital gain from a sale of property, or ordinary taxable income. The District Court in Los Angeles, and the Ninth Circuit both agreed with the IRS that the higher rate of taxation from ordinary income applied. We review the case details in this article.

Most tax practitioners agree that the ruling is not unexpected, but the case nevertheless provides guidance on a topic where no case authority previously existed.

Although not directly addressed in the case, the Court’s rationale in Aldersen should probably provide precedent to the increasingly common situation for plaintiff-side purchase or finance of claims.



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