Under the False Claims Act and as the United States government’s relator, Roco (plaintiff) brought a qui tam action against a medical center, alleging that the medical center had used false information to obtain an overpayment of government funds. Roco’s suit was based on his personal knowledge as a former accountant for the medical center. In 1997, to settle the action, the medical center repaid $15.5 million to the government, and approximately $1.7 million of this amount was paid to Roco as his reward. The reward stipulated that it did not affect any claim the government might have against Roco, and did not result from any obligation that the government had to Roco. Roco’s wife, a state income-tax auditor, told him that the reward probably was not taxable. However, an Internal Revenue Service (IRS) agent advised Roco that if he persisted in requesting a letter ruling to that effect, the IRS probably would say that the reward was taxable. Roco withdrew his request for the letter ruling, but in his 1997 tax return, he did not list the reward as income and therefore paid no tax on it. The commissioner of the IRS (defendant) issued a deficiency notice accordingly. Roco filed a petition challenging the deficiency determination, claiming that treating qui tam rewards as taxable gross income could discourage private persons from acting as relators, and that his reward was not gain derived from capital or labor.