A US Tax Court judge ruled had recently ruled that awards received by whistleblowers will be taxed as ordinary income. Judge Diane Kroupa said former Kyphon Inc employee Craig Patrick's $6.8 million in awards from reporting its company for the latter's misdeeds will be seen as ordinary income and not as capital gains earlier argued by the latter. Bloomberg said capital gains are normally taxed at a lesser rate, which was 15% in 2008 and 2009, as compared with ordinary income at 35% for the same period.
Patrick, who reported an alleged Medicare fraud in the California medical device maker, helped the US from recovering tens of millions of dollars. Although Kroupa did not fail to praise Patrick for his efforts, the rewards he obtained will be taxed appropriately.
Patrick was a former reimbursement manager for for Kyphon, Bloomberg said. He earlier claimed that the California-based company got engaged in a scheme to inflate Medicare bills by convincing hospitals to charge patients undergoing spinal procedure at inpatient rates as opposed to the more cost-efficient outpatient treatment.
Bloomberg said that Kroupa's ruling reaffirmed the US Internal Revenue Service's claims that Patrick and his wife Michele owed the agency of a total of $812,000 for 2008 and 2009.
The couple earlier argued that the tax amount issued by the IRS was erroneous as Craig agreed to sell information to the government to get a share in any recovery in the case in return. Kroupa insisted that under the country's False Claims Act, no such transaction could happen.
"It permits the person to advance a claim on behalf of the government. The award is a reward for doing so. No contractual right exists," Kroupa stated.
When asked by Bloomberg about the ruling, the legal representative of the Patricks, Robert Wood, declined to provide a comment to the news agency.
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