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income questions.” Commissioner v. Glenshaw Glass Co., supra at
431. The payment to a relator in a qui tam action is not a
penalty imposed on the wrongdoer; instead, it is a financial
incentive for a private person to provide information and
prosecute claims relating to fraudulent activity. United States
ex rel. Semtner v. Medical Consultants, Inc., 170 F.R.D. 490, 495
(W.D. Okla. 1997); Biddle & Matricciani, “Whistleblower Lawsuits-
-Health Care Billing Fraud Cases,” 36 Md. B.J. 3 (Jan/Feb. 2003);
Cavanaugh, “False Claims Act: Failure To Seek Legal Advice Not a
Violation of the FCA,” 30 J.L. Med. & Ethics 318 (Summer 2002).
We conclude that the $1,568,087 qui tam payment that
petitioner received in 1997 is includable in gross income.
B. Whether Petitioner Is Liable for the Accuracy-Related
Penalty Under Section 6662(a)
1. Burden of Production
Taxpayers are liable for a penalty equal to 20 percent of
the part of the underpayment attributable to any substantial
understatement of income tax. Sec. 6662(a) and (b)(2). An
understatement is reduced to the extent that it is (1) based on
substantial authority or (2) adequately disclosed on the return
or in a statement attached to the return and there is a
reasonable basis for the tax treatment of that item. Sec.
6662(d)(2)(B)(ii); sec. 1.6662-3(c), Income Tax Regs. A taxpayer
may be relieved of liability for the accuracy-related penalty if
the taxpayer shows that he or she had reasonable cause for the
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