Federal Court: Man in Business of Whistle-Blowing, Expenses Deductible

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The U.S. District Court for the Central District of California ruled that a former TRW Inc. accountant, who received a Federal Claims Act award of $37 million, could deduct as a business expense $18 million in legal expenses, because he was in the trade or business of prosecuting an FCA lawsuit against TRW (Bagley v. United States, C.D. Cal., No. 2:10-cv-00483-RT-FMO, 8/5/13).
District Judge Robert J. Timlin found that the former accountant, Richard D. Bagley, could claim his legal expenses related to the qui tam action against TRW as business expenses under tax code Section 162 on Schedule C of his tax return rather than as an itemized deduction on Schedule A, as the government argued.
Bagley received the payment in 2003 after Northrop Grumman Corp. acquired TRW and agreed to pay the government $111.2 million to settle the FCA allegations in the two FCA suits filed by Bagley.