Lit Alerts—April 2018, Vol. 1

Taxation: New Jersey Appellate Division Court Rules That Qui Tam Awards Are Taxable Under The New Jersey Gross Income Tax Act

In Kite v. Director, Division of Taxation, the Superior Court of New Jersey, Appellate Division, held that a taxpayer must pay state income taxes on a qui tam award under the New Jersey Gross Income Tax Act (Act), and that attorneys' fees and portions paid to co-plaintiffs were not deductible from this tax liability.

The plaintiff, a financial consultant, discovered fraudulent Medicare billing practices by some of his clients. After filing a qui tam action with two additional plaintiffs, he obtained a settlement with the hospital defendants. The federal government paid the qui tam award to the plaintiff's attorneys, who then distributed contractually agreed shares to themselves, the plaintiff's co-plaintiffs in the qui tam action, and the plaintiff himself.