This section contains the nature of the case and procedural background.

P sued the New York University Medical Center (NYUMC) in a qui tam action under the False Claims Act (FCA), 31 U.S.C. secs. 3729-3733 (2000). NYUMC agreed to pay $15,500,000 to the United States in settlement of the case. The United States paid P $1,568,087 in 1997 as his share of the settlement proceeds. The Department of Justice issued a Form 1099-MISC, Miscellaneous Income, showing that it had paid P the monies. P researched tax cases, the Internal Revenue Code, Internal Revenue Service (IRS) regulations, tax publications, and tax treatises. None of those authorities discuss whether payments to a relator in a qui tam case are includable in the relator's gross income. P requested a private letter ruling. The agent assigned told P that he believed a qui tam payment is taxable because it is analogous to a reward, and that the IRS would rule that the qui tam payment was taxable unless P provided legal authorities for his position or withdrew his request for a ruling. P withdrew the letter ruling request. P did not report the qui tam payment on his State and Federal returns for 1997. D determined a deficiency and assessed a penalty. P appealed. P contends that, if qui tam payments are includable in gross income, taxpayers will be discouraged from bringing actions under the FCA.

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