Eleventh Circuit upholds Tax Court judgment against whistleblower who claimed his award was not taxable

by Ben Vernia | October 6th, 2011

On September 28, the Eleventh Circuit Court of Appeals upheld the Tax Court’s January 2010 judgment against whistleblower Albert Campbell. As this site reported then, Campbell

received a relator’s share of $8.75 million in 2003 for two qui tam suits against Lockheed Martin Corp. His attorneys received a 40% contingency fee, or $3.5 million, of the total.

In 2004, he filed a tax return (without consulting a tax professional) in which he identified “other income” of $5.25 million, but this amount was omitted from his taxable income, which he reported as $793. He included a disclosure statement noting that the attorney’s fees had been declared by the 11th Circuit to be non-taxable, but he failed to include any support for not including his portion of the settlement in taxable income, even though he was aware of Roco v. Commissioner, 121 T.C. 160 (2003), which held that qui tam payments are includable in gross income.

The Eleventh Circuit quickly disposed of Campbell’s argument that the award was not taxable because, as “assignee of the United States’ claim against Lockheed, he stands in the shoes of the government in receipt of a nontaxable recovery.”

The court then devoted most of its opinion to affirming the Tax Court’s imposition of an accuracy-related penalty. Campbell, the court wrote, was a sophisticated taxpayer, and he “did not disclose the amount in good faith and with reasonable cause merely by mentioning them in two places on his return. He incredulously and conveniently ignored or overlooked the amount when it was time to do the math.” The court then found that Campbell was not entitled to an exception to the penalty (because he neither offered substantial authority for his approach, adequately disclosed the omission, nor had a reasonable basis for it).

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