Late last month, in Patrick v. Commissioner, No. 14-2190, _ F. 3d __ (7th Cir. Aug. 26, 2015), the Court of Appeals for the Seventh Circuit unanimously affirmed a United States Tax Court opinion as to the characterization of a qui tam award received by a relator. The Seventh Circuit held, as had the Tax Court, that the award constituted ordinary income rather than capital gain and thus was subject to tax at the highest individual rate rather than the preferential (lower) capital gain rate. Previously, this characterization issue had only been addressed by one other federal circuit, the Ninth, in Alderson v. United States, 686 F.3d 791 (9th Cir. 2012).
14 September 2015