By: Derek Hawkins//September 1, 2015//
Civil
7th Circuit Court of Appeals
Officials: RIPPLE, WILLIAMS, and SYKES, Circuit Judges
Tax Income Classification
No.14-2190 Craig Patrick v. CIR
Monies paid to appellants in government settlement stemming from qui tam claim properly classified as other income rather than capital gain.
“Treating a relator’s reward as a capital gain would contravene the long-recognized rule that a “capital gain” generally involves a “realization of appreciation in value accrued over a substantial period of time” of an initial investment of capital. Comm’r v. Gillette Motor Transp., Inc., 364 U.S. 130, 134–35 (1960); see also Alderson, 686 F.3d at 797. But here Patrick made no initial investment in some asset. Instead, he expended time and effort to discover and document Kyphon’s fraud, and that work was not an investment of capital. See Alderson, 686 F.3d at 797. Further, there was no “realization of appreciation in value” of an underlying investment that “accrued over a substantial period of time.” Gillette Motor Transp., Inc., 364 U.S. at 134. Patrick had an interest in a portion of the government’s recovery, but that interest did not grow in value over time. It did not even vest until the government received its recovery. See Vt. Agency of Natural Res., 529 U.S. at 772”
Affirmed