The First Circuit, in a case of first impression and a split with the Ninth Circuit, has held that in determining the tax treatment of an FCA (False Claims Act) civil settlement, a court may consider factors beyond the mere presence or absence of a tax characterization agreement between the government and the settling party.

The case, Fresenius Medical Care Holdings, Inc. v. United States, involved the tax treatment of roughly $127 million paid to the government in partial settlement of what the court characterized as “a kaleidoscopic array of claims.” Fresenius is a major operator of dialysis centers in the U.S. and around the world. Between 1993 and 1997, a series of civil actions were brought against Fresenius by whistleblowers, resulting in investigations into Fresenius’s dealings with various federally funded health-care programs, and a complex of criminal plea and civil settlement agreements by Fresenius with the government.

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