Court Opinion

ID: 5140866
Source: CourtListenerOpinion
Date Created: 2021-12-27 21:15:06.027188+00
Date Added: 2024-06-11T08:24:26.146839
License: Public Domain

[J-72-2021]
                   IN THE SUPREME COURT OF PENNSYLVANIA
                              WESTERN DISTRICT

     BAER, C.J., SAYLOR, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

    EDWARD J. O’DONNELL              :            No. 8 WAP 2021
                                     :
                                     :            Appeal from the Order of the
               v.                    :            Commonwealth Court entered
                                     :            December 18, 2020 at No. 880 C.D.
                                     :            2019, reversing the Order of the
    ALLEGHENY COUNTY NORTH TAX       :            Court of Common Pleas of Allegheny
    COLLECTION COMMITTEE, AND        :            County entered June 11, 2019 at No.
    BOROUGH OF FOX CHAPEL AND FOX    :            SA-17-001040.
    CHAPEL AREA SCHOOL DISTRICT      :
                                     :            ARGUED: October 27, 2021
                                     :
    APPEAL OF: BOROUGH OF FOX CHAPEL :
    AND FOX CHAPEL AREA SCHOOL       :
    DISTRICT                         :

                                       OPINION

JUSTICE WECHT                                   DECIDED: DECEMBER 27, 2021

        After observing fraud perpetrated by his employer against the United States of

America, Edward J. O’Donnell stepped into the role of “relator” (colloquially, a

“whistleblower”) under the federal False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3732.1

1      The FCA “was enacted in 1863 with the principal goal of stopping the massive
frauds perpetrated by large private contractors during the Civil War.” Vermont Agency of
Natural Res. v. U.S. ex rel Stevens, 529 U.S. 765, 791 (2000) (internal quotation marks
omitted). Section 3729 of the FCA imposes civil liability upon “any person” who
“knowingly presents, or causes to be presented, a false or fraudulent claim for payment
or approval” to the United States government. 31 U.S.C. § 3729(a)(1)(A). Pursuant to
Section 3730 of the FCA, a private person, known as a relator, may bring a qui tam action
against the alleged false claimant on behalf of the federal government, id. § 3730(b)(1).
The federal government may choose to intervene in the action and take over the
In this whistleblower capacity, O’Donnell filed a federal qui tam action2 in 2014 alleging,

on behalf of the United States, that his employer violated the FCA. As a financial incentive

to take on this role, the FCA provides relators with a portion of any award that the federal

government obtains in the qui tam action. The United States government ultimately

settled with O’Donnell’s employer. O’Donnell received a 16% share of the settlement, or

$34,560,000. The question before the Court today is whether this qui tam award is

taxable in Pennsylvania as compensation under Section 303 of our Tax Reform Code, 72

P.S. § 7303. For the reasons that follow, we hold that it is. Thus, we reverse the order

of the Commonwealth Court.

       The parties have stipulated to the facts that underlie this matter. O’Donnell was a

resident of the Borough of Fox Chapel (“Borough”) and lived within the Fox Chapel Area

School District (“School District”) (collectively, “Taxing Authorities”) during the 2014 tax

year. In June 2014, O’Donnell filed a qui tam action in federal court, alleging that his

employer, a financial institution, violated the FCA. The federal government intervened in

the action and began prosecuting the case. Ultimately, in August 2014, the Department

of Justice, acting on behalf of the United States, entered into a global settlement

agreement with O’Donnell’s employer, which, inter alia, resolved the claims related to

O’Donnell’s allegations. Thereafter, in December 2014, the United States government

prosecution of the case. Id. § 3730(b)(4). If the action is successful, the relator receives
a share of the proceeds of the action or settlement of the claim, regardless of the federal
government’s involvement. Id. § 3730(d).
2      Qui tam comes from the Latin phrase “qui tam pro domino rege quam pro se ipso
in hac parte sequitur,” meaning “who pursues this action on our Lord the King's behalf as
well as his own.” Vermont Agency of Natural Res., 529 U.S. at 768 n.1 (internal quotation
marks omitted).

                                      [J-72-2021] - 2
entered into a settlement agreement with O’Donnell, whereby O’Donnell received a 16%

share of the total settlement.

       Initially, O’Donnell reported this whistleblower payment as compensation on his

2014 Pennsylvania personal income tax return, and paid taxes accordingly. However,

O’Donnell later filed a petition for refund. On September 26, 2018, the Pennsylvania

Board of Finance and Revenue (“the Board”) ordered the Pennsylvania Department of

Revenue (“the Department”) to refund to O’Donnell the personal income tax which he had

paid on the whistleblower payment. The Department subsequently filed a petition for

review in the Commonwealth Court, challenging the Board’s decision and order. That

petition is currently before the Commonwealth Court and has been stayed pending

resolution of the present case.

       Meanwhile, Keystone Collections Group (“Keystone”), the tax servicer for the

School District and the Borough, discovered that O’Donnell did not file a local earned

income tax return for the 2014 tax year. On May 24, 2017, after referencing the earnings

that O’Donnell reported to the Department in his initial personal income tax return for

2014, Keystone mailed O’Donnell a notice that his local earned income tax for that year

was delinquent in the amount of $437,194.92, consisting of $345,599.92 in earned

income tax, $51,840 in statutory interest and penalties, and $39,755 in costs. On August

21, 2017, O’Donnell filed a petition for administrative appeal, followed, on September 28,

2017, by a “Supplement to Petition for Appeal.” In these submissions, O’Donnell alleged,

inter alia, that the whistleblower payment was not taxable earned income subject to the

School District’s Earned Income Tax Resolution or the Borough’s Earned Income Tax

Ordinance for the 2014 tax year.

                                     [J-72-2021] - 3
         By way of background, the School District and the Borough derive their authority

to impose earned income tax from the Local Tax Enabling Act (“LTEA”), 53 P.S. §§

6924.101 et seq., which authorizes certain political subdivisions to impose a tax on the

earned income of their residents. Relevantly, pursuant to the LTEA, the School District

and the Borough are members of the Allegheny County North Tax Collection District, and

they levy earned income tax at the combined effective rate of 1%.

         The Borough’s Earned Income Tax Ordinance in effect during the 2014 tax year

incorporates by reference the definitions set forth in the LTEA, including the definition of

“earned income.”3 The School District also levies a tax on “earned income” consistent

with the definition in the LTEA, as the School District derives its authority to collect earned

income tax exclusively from that Act.4 The LTEA defines “earned income,” in pertinent

part, as “[t]he compensation as required to be reported to or as determined by the

[Department] under section 303 of the . . . Tax Reform Code of 1971 [(“Tax Code”)], and

rules and regulations promulgated under that section.” 53 P.S. § 6924.501 (footnote

omitted).

         Section 303 of the Tax Code, in turn, defines “compensation,” in relevant part, as:

         All salaries, wages, commissions, bonuses and incentive payments
         whether based on profits or otherwise, fees, tips and similar remuneration
         received for services rendered whether directly or through an agent and
         whether in cash or in property . . . .

72 P.S. § 7303(a)(1)(i). Additionally, the Department’s regulations provide, in relevant

part, as follows:

3        See Borough of Fox Chapel Ordinance No. 687 at § 2.
4        See Ski Roundtop, Inc. v. Fairfield Area Sch. Dist., 533 A.2d 828, 831 (Pa. Cmwlth.
1987).

                                       [J-72-2021] - 4
       Compensation includes items of remuneration received, directly or through
       an agent, in cash or in property, based on payroll periods or piecework, for
       services rendered as an employee or casual employee, agent or officer of
       an individual, partnership, business or nonprofit corporation, or government
       agency. These items include salaries, wages, commissions, bonuses,
       stock options, incentive payments, fees, tips, dismissal, termination or
       severance payments, early retirement incentive payments and other
       additional compensation contingent upon retirement, including payments in
       excess of the scheduled or customary salaries provided for those who are
       not terminating service, rewards, vacation and holiday pay, paid leaves of
       absence, payments for unused vacation or sick leave, tax assumed by the
       employer, or casual employer signing bonuses, amounts received under
       employee benefit plans and deferred compensation arrangements, and
       other remuneration received for services rendered.

61 Pa. Code § 101.6(a).

       Relying upon the above provisions, the Appeals Board of the Allegheny County

North Tax Collection Committee (“Appeals Board”) denied the petition for administrative

appeal, concluding, inter alia, that O’Donnell’s whistleblower payment constituted

compensation and, thus, was taxable earned income subject to the School District’s

Earned Income Tax Resolution and the Borough’s Earned Income Tax Ordinance for the

2014 tax year. In so finding, the Appeals Board explained that:

       By bringing his Qui Tam action on behalf of the United States of
       America, . . . Taxpayer acted as an “agent” of the United States
       Government pursuant to 61 Pa. Code § 101.6(a), and the compensation
       received as a result of his services rendered constitute[s] taxable earned
       income at the local level.5

Thus, the Appeals Board denied relief.

       On December 13, 2017, O’Donnell appealed the decision to the Allegheny County

Court of Common Pleas, which affirmed, finding that the whistleblower payment was

taxable as earned income at the local level. In so doing, the court looked to the definition

5   Decision of the Appeals Board of the Allegheny County North Tax Collection
Committee, 11/16/17, at 2.

                                      [J-72-2021] - 5
of “compensation” in the Department’s regulation and applied that definition to the instant

matter, explaining that, to be considered compensation for tax purposes, the payment

must be for services rendered as an “employee or casual employee, agent or officer of

an individual, partnership, business or nonprofit corporation, or government agency.” 6

The court determined that, here: O’Donnell acted as an agent of the federal government

when he filed the qui tam action, as the FCA requires the whistleblower in a qui tam action

to bring the action on his own behalf and on behalf of the United States government, see

31 U.S.C. § 3730(b)(1); O’Donnell complied with that directive when he affirmatively filed

the lawsuit on behalf of the United States; and the amount of money that O’Donnell was

to receive was contingent upon the success of the lawsuit, thus evincing a relationship

with the federal government. Accordingly, the court concluded that, because O’Donnell

received the whistleblower payment while acting as an agent of the federal government,

the payment constituted taxable compensation. Thus, the court entered judgment against

O’Donnell in the amount of $437,194.92. O’Donnell filed a petition for review in the

Commonwealth Court.

       An en banc panel of the Commonwealth Court reversed. O’Donnell v. Allegheny

Cnty. N. Tax Collection Comm., 880 C.D. 2019, 2020 WL 7413634 (Pa. Cmwlth. filed

Dec. 18, 2020).7 Preliminarily, the court explained that the Borough’s earned income tax

6      Tr. Ct. Op., 6/11/2019, at 3 (quoting 61 Pa. Code § 101.6(a)).
7      Before the courts below, O’Donnell also alleged that his underlying petition for
administrative appeal should be deemed approved because, he claimed, his appeal was
not heard and decided by the Appeals Board within sixty days of the date the petition was
received, as required by Section 8433 of the Local Taxpayers Bill of Rights, 53 Pa.C.S. §
8433. The trial court rejected this argument, and the Commonwealth Court concluded
that the trial court’s determination in this regard was supported by the evidence of record.
As this issue is not before us, we do not address it.

                                      [J-72-2021] - 6
ordinance expressly incorporates the definitions contained in Section 501 of the LTEA,

which defines “earned income” as “[t]he compensation as required to be reported to or as

determined by the [Department] under section 303 [72 P.S. § 7303] of . . . the Tax Reform

Code of 1971, and rules and regulations promulgated under that section.” Id. at 6 (quoting

53 P.S. § 6924.501). As a result, the court next turned to Section 303 of the Tax Code,

observing that the Tax Code sets forth eight classes of income to be taxed as personal

income in Pennsylvania, including, as relevant herein, “compensation,” id. (citing 72 P.S.

§ 7303), defined in the Tax Code as “salaries, wages, commissions, bonuses and

incentive payments whether based on profits or otherwise, fees, tips and similar

remuneration received for services rendered, whether directly or through an agent, and

whether in cash or property.” Id. at 6 n.10 (quoting 72 P.S. § 7301(d)).

      Given that qui tam payments are not explicitly included in the definition of

“compensation” under either the Tax Code or the Department’s regulations, the court

opined that “the determination of whether such a recovery is taxable for [earned income

tax] purposes comes down to whether said recovery fits, or arguably fits, into one of the

kinds of compensation contemplated in the Tax Code.” Id. at 21. Emphasizing that, to

be considered “compensation,” a payment must be made “for services rendered as an

employee or casual employee, agent or officer,” id. (quoting 61 Pa. Code § 101.6(a))

(emphasis omitted), the court reasoned that, here, O’Donnell must have received the

whistleblower payment for services rendered, which necessarily required either that he

was employed by the federal government or that he served as its agent. The court found

that O’Donnell was neither.

                                     [J-72-2021] - 7
      In this regard, the court noted that, in determining whether someone is an

employee for purposes of workers’ compensation or unemployment compensation, courts

consider the degree to which an individual’s efforts were under the control of another.

Applying that standard to determine whether O’Donnell was an employee of the federal

government, the court observed that O’Donnell himself initiated the qui tam litigation, and

the federal government had little to no control over him, as O’Donnell could have moved

forward with the litigation on his own if the federal government had elected not to pursue

the case. Thus, the court concluded that O’Donnell was not an employee of the federal

government.

      The court likewise found that O’Donnell was not an agent of the United States of

America, given that the Department of Justice assumed primary responsibility for

prosecuting the qui tam action once it decided to proceed with the litigation, and

whistleblowers are not vested with any governmental power. In support of its conclusion,

the court rejected any attempt to “shoehorn Taxpayer’s qui tam recovery into a type of

compensation that is taxable” for earned income tax purposes, stressing that the

Commonwealth’s tax laws are to be narrowly and strictly construed against the

government and in favor of the taxpayer. Id. at 22.

      The court next considered whether the whistleblower payment was taxable under

Pennsylvania law as an award. The court determined that it was not. While Taxing

Authorities likened the qui tam proceeds to an award of damages in a lawsuit, the court

disagreed, explaining that, although O’Donnell received the whistleblower payment as a

result of initiating the lawsuit, the recovery was not tied to any damages sustained by

O’Donnell and, thus, was “not part of an effort to make [him] whole.” Id. at 10. The court

                                     [J-72-2021] - 8
further found that the whistleblower payment was not a reward for O’Donnell’s efforts,

observing that rewards typically are established and announced as an incentive for a

particular outcome, whereas, here, there was no guarantee that O’Donnell would receive

any financial recovery for his efforts.

       Emphasizing that the General Assembly has had “ample time” since the FCA’s

adoption in 1863 to include the proceeds from qui tam recoveries in the Commonwealth’s

tax laws if it wished to do so, the court concluded that the whistleblower payment was not

taxable for earned income tax purposes. The court opined that “[i]t seems incongruous

that, on the one hand, we would encourage individuals to ferret out government waste,

and, on the other hand, we would punish them by taxing the proceeds for doing so.” Id.

at 10. Accordingly, the Commonwealth Court reversed the trial court’s order.

       Judge Ellen Ceisler authored a concurring and dissenting opinion, joined by Judge

Renée Cohn Jubelirer. Judge Ceisler disagreed with the majority’s conclusion that the

whistleblower payment did not constitute taxable income for local earned income tax

purposes. In Judge Ceisler’s view, the definition of “compensation” set forth in Section

303(a)(1)(i) of the Tax Code, rather than the Department’s administrative regulation,

controlled. Judge Ceisler reasoned that, because the definition set forth in Section 303

is broader than the regulation and does not contain language making the taxability of

remuneration contingent on the recipient’s employment status, the question of whether

O’Donnell was an employee or agent of the federal government was not relevant to the

question of whether the whistleblower payment constituted compensation.            Rather,

observing that the purpose of a qui tam cause of action is to “incentivize private citizens

to aid the federal government in rooting out fraud and corruption,” Judge Ceisler explained

                                          [J-72-2021] - 9
that she would characterize the whistleblower payment as an “incentive payment,” which

is listed as compensation under Section 303(a)(1)(i) of the Tax Code, and, thus, is taxable

income.8 Judge Ceisler emphasized that, here, O’Donnell was aware when he initiated

the qui tam action that he could benefit financially from it, thus incentivizing him to bring

the action in the first place and to actively assist the federal government once it began

prosecuting the case. As a result, Judge Ceisler would have affirmed the trial court’s

order.

         Taxing Authorities subsequently filed a petition for allowance of appeal. We

granted allocatur in order to consider the question of whether a qui tam payment

constitutes taxable “earned income” under the LTEA.

         Taxing Authorities assert that the Commonwealth Court erred in holding that the

whistleblower payment is not compensation and, thus, not taxable earned income. They

note that the United States government taxes qui tam payments, and they suggest that

all other states do as well. As a preliminary matter, Taxing Authorities take issue with the

Commonwealth Court’s reliance on the definition of “compensation” found in the

regulation, noting that the regulation requires that there be a nexus between the payor

and the recipient of the payment in order for the payment to be considered

compensation—i.e., the remuneration must be received for “services rendered as an

employee or casual employee, agent or officer of an individual, partnership, business or

nonprofit corporation, or government entity”9—a requirement which is not included in the

Tax Code’s definition of compensation. Indeed, Taxing Authorities observe that the

8        Id. at 12 (Ceisler, J., concurring and dissenting).
9        Appellants’ Brief at 14-15 (quoting 61 Pa. Code § 101.6(a)).

                                        [J-72-2021] - 10
statutory definition merely defines compensation as “salaries, wages, commissions,

bonuses and incentive payments whether based on profits or otherwise, fees, tips and

similar remuneration received for services rendered whether directly or through an

agent.”10

       Taxing Authorities maintain that applying the relationship requirement from the

regulation would render portions of the Tax Code’s definition inoperable, noting, for

example, that the statute lists “commissions” and “tips” as forms of compensation, but

that it would be highly unlikely that the payor and recipient of a tip would have a

relationship of the sort sufficient to satisfy the regulation’s requirement. Likewise, Taxing

Authorities contend that this Court previously found in Commonwealth v. Staley, 381 A.2d

1280 (Pa. 1978), that commissions earned by a life insurance agent are taxable

compensation even though they are not earned through an employer/employee

relationship. Taxing Authorities argue that, because the regulation is narrower than—and

arguably at odds with—the more expansive definition in the Tax Code, the statutory

definition of compensation should control, emphasizing that “the power of an

administrative agency to prescribe rules and regulations under a statute is not the power

to make law, but only the power to adopt regulations to carry into effect the will of the

Legislature as expressed by the statute.”11

       Looking solely to the definition contained in the Tax Code, Taxing Authorities

contend that the whistleblower payment is indeed compensation and, thus, taxable.

10     Id. at 13 (quoting 72 P.S. § 7303(a)(1)(i)).
11     Appellants’ Brief at 15-16 (quoting Commonwealth v. DiMeglio, 122 A.2d 77, 80
(Pa. 1956)).

                                      [J-72-2021] - 11
Specifically, Taxing Authorities claim that the payment is an incentive, which, they note,

is a payment made for the purpose of inducing performance and is explicitly listed in the

statutory definition of compensation. In this regard, Taxing Authorities argue that qui tam

awards or settlements incentivize whistleblowing, highlighting that, under the FCA, the

greater the whistleblower’s effort and level of participation in the case, the greater his or

her possible share of an award or settlement.12 Taxing Authorities suggest that the

possibility of receiving a share of the proceeds of a qui tam award or settlement in this

case induced O’Donnell to bring the action against his employer and to assist the federal

government in its prosecution thereof, as exhibited by his “substantial contribution to the

prosecution of the action,” which resulted in him receiving a 16% share of the

settlement.13

       Alternatively, Taxing Authorities assert that the whistleblower payment constitutes

“similar remuneration received for services rendered” under the Tax Code’s definition of

compensation. 72 P.S. § 7303(a)(1)(i). Taxing Authorities characterize this language as

a “limited catch-all” provision that includes other payments similar to those explicitly

recognized as compensation in the definition, such as stock options, which this Court has

found to be “other compensation . . . for services rendered,” and, thus, taxable earned

income under the LTEA, notwithstanding that these payments are not specifically listed

in the Tax Code’s definition. See Marchlen v. Twp. of Mt. Lebanon, 746 A.2d 566, 569

(Pa. 2000). Indeed, consistent with this interpretation, Taxing Authorities stress that the

Department itself has stated that, “if a particular item of income is not explicitly listed in

12     Id. at 29 (citing 31 U.S.C. § 3730(d)(1)).
13     Id. at 31 (citing 31 U.S.C. § 3730(d)(1)).

                                      [J-72-2021] - 12
the definition . . . the relevant inquiry is ‘whether the payment is a substitute for income

that would have been included in one of the eight classes of income subject to

Pennsylvania Personal Income Tax.’”14

       Here, noting the United States’ strong interest in “identifying and ferreting out

fraud,” Taxing Authorities maintain that whistleblowers provide valuable services to the

federal government by initiating and participating in qui tam actions under the FCA and

providing the government with information related thereto.15 Taxing Authorities further

assert that a majority of federal courts have held that “a qui tam award is given in

exchange for information and services and is based entirely on the whistleblower’s

information and personal efforts,” which Taxing Authorities suggest supports a similar

finding under Pennsylvania law.16 Accordingly, Taxing Authorities contend that qui tam

payments are indeed rewards for those services, or bounties, and likewise fall within the

definition’s   catch-all   provision,   rendering   the    whistleblower   payment   taxable

compensation on this basis as well.

       Finally, Taxing Authorities claim that, even if we were to apply the regulation, the

whistleblower payment would still be taxable compensation because O’Donnell acted as

an agent of the federal government when he brought the qui tam lawsuit. In so asserting,

Taxing Authorities note that our Court has recognized the existence of an agency

relationship based upon the following three elements: “(1) the manifestation by the

14     Appellants’ Brief at 26-27 (quoting Pa. Ltr. Rul. PIT-06-007).
15     Id.
16    Id. at 28 (citing Alderson v. United States, 718 F.Supp.2d 1186, 1190-91 (C.D. Cal.
2010)).

                                        [J-72-2021] - 13
principal that the agent shall act for him, (2) the agent’s acceptance of the undertaking,

and (3) the understanding of the parties that the principal is to be in control of the

undertaking.”17

       Applying that standard to the facts of this case, Taxing Authorities argue that the

first element of an agency relationship is satisfied because the United States government

statutorily manifested its intent for a private individual to act on its behalf by expressly

authorizing a person to bring a civil action for violating the FCA in Section 3730(b)(1) and

requiring the action to be “brought in the name of the Government.” 31 U.S.C. §

3730(b)(1). Next, Taxing Authorities suggest that, by filing the action in this case and

disclosing all material evidence and information to the federal government, O’Donnell

accepted the undertaking authorized by the FCA, thereby satisfying the second element

of an agency relationship. Finally, Taxing Authorities assert that the third element of the

agency relationship is satisfied in this case because the FCA makes clear that the

government is to be in control of the undertaking. In this regard, Taxing Authorities note:

that the qui tam action may only be dismissed with the government’s consent, see id.;

that the government is “not . . . bound by an act of the person bringing the action,” id. §

3730(c)(1); that the government may settle or dismiss the action without the consent of

the person bringing the action, id. § 3730(c)(2)(A)-(B); and that the government may

impose limitations upon the involvement of the person who initiated the action, id. §

3730(c)(2)(C). Taxing Authorities emphasize that the government’s dominant role over

17     Id. at 20 (quoting Basile v. H&R Block, Inc., 761 A.2d 1115, 1120 (Pa. 2000)).

                                     [J-72-2021] - 14
the whistleblower in a qui tam action confirms the existence of an agency relationship

between the government and the taxpayer herein.18

       Accordingly, Taxing Authorities maintain that the whistleblower payment is taxable

compensation under the LTEA and Tax Code, just as such payments are taxable for

federal income tax purposes. Thus, Taxing Authorities ask us to reverse the

Commonwealth Court’s decision and to enter judgment in their favor in the amount of

$437,194.92.19

18     Additionally, Taxing Authorities note that the regulation describes compensation
as including services rendered as a “casual employee,” which the regulation defines as
“an individual who performs, or by agreement, refrains from performing, any service of
whatever nature and is not an employe [sic].” 61 Pa. Code § 101.1. Seemingly
suggesting that O’Donnell was a casual employee of the federal government, Taxing
Authorities argue that the Commonwealth Court “erred by not examining the facts of this
case in light of the broad regulatory definition of a casual employee.” Appellants’ Brief at
15 n.4. In response, O’Donnell asserts that Taxing Authorities failed to raise this
argument below, rendering it waived.
19      The Department has filed an amicus curiae brief in support of Taxing Authorities
in this matter, noting that it has a direct interest in the outcome of this case because it is
vested with the authority “to determine the tax liability of taxpayers subject to personal
income tax,” Department’s Brief at 2 (citing 72 P.S. §§ 7338, 7355), and to “prescribe,
adopt, promulgate and enforce rules and regulations relating to any matter or thing
pertaining to the administration and enforcement of the provisions of [the Tax Code] and
the collection of taxes imposed by Article III [of the Tax Code],” id. at 3 (quoting 72 P.S.
§ 7354).
The arguments raised in the Department’s brief are similar to those advanced by Taxing
Authorities. The Department also asserts that the regulation does not specifically define
the term “compensation,” but, rather, provides a “non-exclusive list of remuneration that
meets the definition of compensation,” as exhibited by the regulation’s use of the word
“includes” immediately before its list of various types of remuneration. Id. at 6-7. Thus,
the Department maintains that the regulation’s reference to remuneration in the context
of employer/employee and principal/agent relationships is not a limitation on the scope of
what is considered compensation under the Tax Code, but, instead, is an example of
“common . . . items that qualify as compensation.” Id. at 10.
The Department suggests that its position in this regard is consistent with its longstanding
interpretation of the regulation, highlighting that, when it amended its personal income tax

                                      [J-72-2021] - 15
       In response, O’Donnell contends that the Commonwealth Court properly

concluded that the whistleblower payment is not taxable as earned income. Initially, to

the extent that Taxing Authorities suggest that the Tax Code’s definition of compensation

should control over the regulation, O’Donnell maintains that Taxing Authorities waived

that argument by failing to raise it before the lower courts. Indeed, O’Donnell claims that

Taxing Authorities argued below only that the whistleblower payment was taxable

compensation because O’Donnell received it for services he provided while acting as an

agent of the federal government—consistent with the regulation. As a result, O’Donnell

argues, Taxing Authorities may not now shift their position and allege that the Tax Code

and regulation conflict or that the Tax Code definition should prevail.

       In any event, O’Donnell contends, the definitions in the Tax Code and the

regulation do not conflict, but, rather, must be read in tandem when determining whether

the whistleblower payment constitutes taxable compensation. According to O’Donnell,

this is because the Borough and the School District derive their authority to levy and

collect an earned income tax from the LTEA, and the LTEA defines “earned income” as

“[t]he compensation as required to be reported to . . . the Department . . .under section

303 of . . . the [Tax Code], and rules and regulations promulgated under that section.” 20

In light of this language providing that earned income is to be based both on the Tax

Code’s definition of compensation and the associated rules and regulations, O’Donnell

regulations in 1999, it specifically stated that an item of “remuneration received for
services is taxable as compensation whether or not the services were rendered as, or the
item is received by, an ‘employe.’ That is why ‘compensation’ has always been defined
so it ‘includes’ (and is thus not limited to) ‘items of remuneration received by an employe
[sic].’” Id. at 7 n.4 (quoting 29 Pa.B. 6250 (Dec. 11, 1999)) (emphasis omitted).
20     Appellee’s Brief at 11 (quoting 53 P.S. § 6924.501) (emphasis in original).

                                     [J-72-2021] - 16
stresses that the regulation must indeed be considered in determining whether a payment

is taxable compensation. Accordingly, noting that the Tax Code defines compensation,

in pertinent part, as remuneration received “for services rendered,” 72 P.S. § 7303(a)(1),

and that the regulation more specifically provides that compensation includes “items of

remuneration received . . . for services rendered as an employee or casual employee,

agent or officer,” 61 Pa. Code § 101.6(a) (emphasis added), O’Donnell argues that the

relevant inquiry in determining whether the whistleblower payment is taxable

compensation is whether he received it for services he rendered as an employee or agent

of the federal government.

       While Taxing Authorities allege that the regulation is at odds with the definition of

compensation in the Tax Code and, thus, should not be considered when determining

whether a payment is earned income under the LTEA, O’Donnell emphasizes that the

regulation existed in 2008, when the General Assembly amended the definition of “earned

income” in the LTEA to specifically include both the definition of “compensation” in the

Tax Code and the Department’s rules and regulations thereunder. Thus, O’Donnell

maintains, the General Assembly was well aware of the regulation and its language tying

compensation to employer and agent-based relations, and intentionally chose to

incorporate it into the LTEA definition. According to O’Donnell, requiring a nexus between

compensation and an employer/agency relationship makes sense in this context, as doing

so is consistent with the fact that local income tax traditionally is not a tax on all forms of

income, but, rather, is more narrowly focused on taxing wages and other forms of

payment of this nature. Consequently, O’Donnell argues that, because the regulation is

“a duly promulgated regulation of the Department interpreting the definition of

                                      [J-72-2021] - 17
compensation under Section 303 of the [Tax] Code,” it must be given appropriate weight

and deference unless it is clearly erroneous, inconsistent with the Tax Code, or

unreasonable.21

       Invoking the definition of compensation provided by both the Tax Code and the

regulation, O’Donnell argues that the Commonwealth Court properly concluded that he

was not an agent or employee of the federal government, and, thus, that the whistleblower

payment was not compensation for local income tax purposes.              More specifically,

O’Donnell asserts that he did not act as an agent of the federal government when he

initiated the qui tam action because there was no fiduciary relationship between him and

the federal government, and because he lacked any power with respect to the federal

government’s actions related to the litigation. In this regard, O’Donnell highlights that he

had no authority to act on the federal government’s behalf with respect to the qui tam

action or to bind the federal government with his actions, noting that he “brought the qui

tam action first and foremost in his name as a plaintiff seeking redress from the court,” id.

at 22, and that federal courts have specifically held that “a whistleblower is not vested

with any governmental power.”22

       While O’Donnell concedes that the FCA requires the action to be brought in the

name of the United States of America, he stresses that his mere initiation of the action

bound the federal government to nothing, as the United States alone retained the

authority to intervene and proceed with the litigation, and Section 3730(c)(1) of the FCA

21     Appellee’s Brief at 14.
22    Id. at 23 (quoting U.S. ex rel. O’Donnells Against Fraud v. Gen. Elec. Co., 41 F.3d
1032, 1041 (6th Cir. 1994)).

                                      [J-72-2021] - 18
specifically provides that “if the Government proceeds with the action, it shall have the

primary responsibility for prosecuting the action, and shall not be bound by an act of the

person bringing the action.”23 O’Donnell maintains that, when the federal government

decides to intervene and proceed with the qui tam action, the government alone holds

control over the proceedings, including over the decision of whether to dismiss, litigate,

or settle the action, all without the approval of the private plaintiff. O’Donnell asserts that

the federal government’s decision to intervene and ultimately settle the qui tam action in

this case did not create an agency relationship. O’Donnell likewise contends that he was

not an employee of the federal government, as the Tax Code defines “employee” as “any

individual from whose wages an employer is required under the Internal Revenue Code

to withhold Federal income tax,” 72 P.S. § 7301(g), and, here, the whistleblower payment

was not reported as wages paid to an employee on a federal Form W-2.

       O’Donnell posits that, even if he had acted as a federal government agent or

employee by bringing the qui tam action, the whistleblower payment still would not be

taxable compensation because he did not receive it for services that he rendered to the

federal government. Rather, O’Donnell argues, the whistleblower payment was merely

an award of the share of the global settlement that he was to receive as a plaintiff in the

prosecution of the action, again emphasizing that he brought the qui tam action in his

name and initiated the prosecution thereof.

       O’Donnell maintains that the United States’ treatment of the whistleblower

payment for federal income tax purposes suggests that the government did not believe

that O’Donnell provided services to it as part of the qui tam action. O’Donnell notes that

23     Id. at 22 (quoting 31 U.S.C. § 3730(c)(1)) (emphasis omitted).

                                      [J-72-2021] - 19
the whistleblower payment to O’Donnell is reported as “other income” in Box 3 on the

federal Form 1099-MISC, a category used to report “prizes and awards that are not for

services performed,” as opposed to Box 7, in which “prizes and awards for services

performed by nonemployees” are reported.24

      Although O’Donnell concedes that the Internal Revenue Code does not typically

inform our analysis of matters concerning Pennsylvania personal income tax, he contends

that the manner in which the federal government classified the whistleblower payment for

federal income tax purposes is instructive in determining whether the whistleblower

payment was for services rendered, inasmuch as “the federal government is the best

authority to determine whether a payment is for services.”25      Because the federal

government did not consider the whistleblower payment to be reportable for federal

income tax purposes as compensation for services rendered, O’Donnell argues, the

payment also should not be considered taxable compensation for purposes of

Pennsylvania personal income tax or local earned income tax.

      Finally, O’Donnell emphasizes that Pennsylvania’s method of taxing personal

income is unique because, while most other states use either a person’s total federal

adjusted gross income or his taxable income under the Internal Revenue Code as the

base for calculating that individual’s state personal income tax, Pennsylvania imposes

personal income tax only on payments which fall into certain enumerated classes of

income. Accordingly, O’Donnell maintains, because qui tam payments do not fall within

24     Appellee’s Brief at 28-29 (quoting 2014 Instructions for Form 1099-MISC, 5-6,
available at https://www.irs.gov/pub/irs-prior/i1099msc--2014.pdf) (emphasis omitted).
25    Id. at 28 (emphasis omitted).

                                      [J-72-2021] - 20
any of these enumerated classes of income, they are not subject to Pennsylvania and

local income tax, and other states’ treatment of whistleblower payments under their

respective personal income tax schemes have no bearing on whether such payments are

taxable under the laws of this Commonwealth. O’Donnell argues that this conclusion is

“consistent with the well-settled principle that a tax cannot be implied if the income at

issue does not stem from any of the eight taxable classes.”26 O’Donnell urges this Court

to affirm the Commonwealth Court’s decision finding that the whistleblower payment was

not taxable compensation under the LTEA.27

       The question of whether a qui tam payment is considered taxable earned income

under the LTEA is a matter of statutory interpretation. As such, our standard of review is

de novo and our scope of review is plenary. Commonwealth v. Lynn, 114 A.3d 796, 817-

18 (Pa. 2015). It is well settled that, in interpreting a statute, this Court’s objective is to

ascertain and give effect to the intent of our General Assembly. 1 Pa.C.S. § 1921(a).

The best expression of this intent is found in the statute’s plain language. Cagey v.

Commonwealth, 179 A.3d 458, 462 (Pa. 2018). If the statutory language is “clear and

free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing

its spirit.” 1 Pa.C.S. § 1921(b).

26     Id. at 15.
27      While the Department filed an amicus curiae brief in support of Taxing Authorities’
interpretation of “compensation” under the Tax Code and the regulation, O’Donnell
argues that “the Department is bound by the plain language of its own regulations and
cannot adopt positions contrary to the language set forth in the [Tax] Code.” Appellee’s
Brief at 16 (citing Saturday Family LP v. Commonwealth, 168 A.3d 400, 407 (Pa. Cmwlth.
2017) (“courts need not defer to an administrative agency’s interpretation of its own
regulation where that interpretation ‘is clearly erroneous or inconsistent with the
regulation.’”)).

                                       [J-72-2021] - 21
       We construe words and phrases “according to the rules of grammar and according

to their common and approved usage.” 1 Pa.C.S. § 1903(a). Here, we can ascertain the

legislature’s intent and meaning from the plain and unambiguous language of Section

303. “When the language of a statute is plain and unambiguous and conveys a clear and

definite meaning, there is no occasion for resorting to the rules of statutory interpretation

and construction; the statute must be given its plain and obvious meaning.”

Commonwealth ex rel. Cartwright v. Cartwright, 40 A.2d 30, 33 (Pa. 1944).

       In Pennsylvania, compensation is taxable under the Local Tax Enabling Act

(“LTEA”) and the Tax Reform Code. The local earned income tax is assessed pursuant

to the LTEA, 53 P.S. §§ 6924.101-6924.901. Taxable “earned income” under the LTEA

is defined as “the compensation as required to be reported to . . . the Department of

Revenue under [Section 303 of the Tax Reform Code of 1971], and the rules and

regulations promulgated under that section . . . .” 53 P.S. § 6924.501. Section 303 of the

Tax Reform Code, in turn, defines “compensation” as: “All salaries, wages, commissions,

bonuses and incentive payments whether based on profits or otherwise, fees, tips and

similar remuneration received for services rendered whether directly or through an agent

and whether in cash or in property . . . .” 72 P.S. §§ 7303(a)(1)(i).28 Qui tam payments

are not explicitly listed in this definition. Thus, in order to ascertain whether these

28     In addition to compensation, the other classes of income listed in Section 303
include net profits; net gains or income from disposition of property; net gains or income
derived from or in the form of rents, royalties, patents and copyrights; dividends; interest
“derived from obligations which are not statutorily free from State or local taxation under
any other act of the General Assembly . . . or under the laws of the United States . . . .”;
gambling and lottery winnings other than noncash prizes of the Pennsylvania State
Lottery; and net gains or income derived through estates or trusts. 72 P.S. § 7303(a)(2)-
(8).

                                      [J-72-2021] - 22
payments constitute taxable compensation, we must determine whether they fall within

any of the categories of compensation enumerated in Section 303(a)(1)(i).

       To answer that question, an understanding of qui tam actions under the FCA is

necessary. The FCA aims to prevent fraud upon the federal government by incentivizing

private citizens, known as relators or whistleblowers, to act “for the person and for the

United States Government” against the entity perpetrating fraud. 31 U.S.C. § 3730(b)(1).

The action is brought in the name of the federal government. Id. Once the relator files

suit and notifies the government, the government chooses whether to pursue the claim,

to allow the relator to pursue the claim, or to seek dismissal of the claim. Id. § 3730(b)(2),

(b)(4), (c). If the government declines to intervene, the relator has the exclusive right to

conduct the action. Id. § 3730(b)(4). Whistleblowers, who, quite often are employed by

the entity engaging in fraud, are authorized to receive a portion of the award ultimately

obtained by the government in view of their role in bringing and pursuing the action. Id.

§ 3730(d). The payment is proportional to the whistleblower’s efforts in the case, including

the nature of the information that the whistleblower discloses to the federal government

and the role the whistleblower played in advancing the case to litigation. Id.

       The FCA “gives the relator an interest in the lawsuit, and not merely the right to

retain a fee out of the recovery.” Vermont Agency of Nat. Res., 529 U.S. at 772 (emphasis

removed).    In addition to authorizing relators to act for themselves and the federal

government, the FCA gives relators the right to continue as parties to the action, even

where the government has assumed primary responsibility for prosecuting it, 31 U.S.C. §

3730(c)(1); entitles relators to a hearing if the government seeks dismissal of the claim,

                                      [J-72-2021] - 23
id. § 3730(c)(2)(A); and prohibits the government from unilaterally settling claims over

relators’ objections without a specific judicial determination, id. § 3730(c)(2)(B).

       Awarding the whistleblower a portion of the settlement allows the individual who

initiated the qui tam lawsuit to share in the amount ultimately paid by the entity

perpetrating the fraud, thereby providing these individuals with a financial incentive to turn

on their employers. The purpose of the FCA is to “enhance the government’s ability to

recover losses sustained as a result of fraud against the government,” and the qui tam

provisions achieve incentives for “whistle-blowing insiders with genuinely valuable

information.” In re Natural Gas Royalties, 562 F.3d 1032, 1038-39 (10th Cir. 2009)

(cleaned up). This incentive drives the initiation of the lawsuit, an economic reality the

federal courts have recognized time and time again.29

29      See, e.g., Campbell v. Redding Med. Ctr., 421 F.3d 817, 821 (9th Cir. 2005)
(“Congress sought to provide incentives to qui tam whistleblowers to come forward. . . .”);
United States ex rel. Fine v. Sandia Corp., 70 F.3d 568, 571 (10th Cir. 1995) (observing
that, to further the purpose of recovering losses sustained as a result of fraud, Congress
sought to achieve “the golden mean between adequate incentives for whistle-blowing
insiders with genuinely valuable information and discouragement of opportunistic
plaintiffs who have no significant information to contribute of their own.”); United States v.
Northrop Corp., 59 F.3d 953, 963 (9th Cir. 1995) (recognizing that that the central purpose
of the qui tam provisions is to “set up incentives to supplement government enforcement”
and “encourage insiders privy to a fraud on the government to blow the whistle on the
crime”); United States v. NEC Corp., 11 F.3d 136, 139 (11th Cir. 1993) (“The FCA’s qui
tam provisions do not act as a penalty; rather, they provide incentive to government
‘whistleblowers’ and compensate such individuals for their time and trouble.”); United
States ex rel. Stinson, Lyons, Gerlin & Bustamante, v. Prudential Ins. Co., 944 F.2d 1149,
1154 (3d. Cir. 1991) (recognizing incentives for private enforcement of the FCA); Rocco
v. Comm’r of Internal Rev., 121 T.C. 160, 165 (T.C. 2003) (“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. Med. Consultants, 170 F.R.D. 490,
495 (W.D. Okla. 1997) (“It is undeniable on even the most cursory review of the legislative
record that the qui tam provisions were added to the FCA as an incentive to have
individuals come forward with information and prosecute claims which might not be

                                      [J-72-2021] - 24
       Incentive payments are included in the statutory definition of compensation. 72

P.S. § 7303. Although “incentive payment” is not statutorily defined, an incentive is

generally understood as something provided to motivate further action. Merriam-Webster

defines “incentive” as “something that incites or has a tendency to incite to determination

or action.”   Incentive, MERRIAM-W EBSTER’S ONLINE DICTIONARY, https://www.merriam-

webster.com/dictionary/incentive (last visited Dec. 3, 2021). And the term “payment”

plainly includes the provision of a portion of a financial settlement, such as the percentage

of the settlement contemplated in the FCA.

       By the terms of the FCA, O’Donnell’s qui tam payment was intended to incentivize

whistleblowers like O’Donnell to identify employer fraud, initiate the qui tam action, and

provide valuable information to the federal government. To compensate O’Donnell for

acting as a relator under the FCA, O’Donnell received 16% of the global settlement, an

amount warranted because O’Donnell’s “substantially contributed to the prosecution of

the action.” 31 U.S.C. § 3730(d)(1). The qui tam payment plainly was O’Donnell’s

incentive. This incentive payment is taxable as compensation under the plain language

of the Tax Reform Code, and, therefore, as earned income under the LTEA.                  See

Marchlen v. Twp. of Mt. Lebanon, 746 A.2d 566, 569 (Pa. 2000) (holding that stock

options granted as an award and “incentive to promote the employer’s well-being” are

initially efficient for the government to pursue.”); United States ex rel. Springfield Terminal
Ry. Co. v. Quinn, 14 F.3d 645 (D.C. Cir. 1994) (recognizing that the 1986 amendments
to the FCA enhanced incentives by increasing the monetary award to relator).

                                      [J-72-2021] - 25
“incentive payments” under the LTEA). The plain language of the statute answers the

question before us.30

       Rather than apply the plain language of Section 303, the Commonwealth Court

held that, in order for O’Donnell’s whistleblower payment to be compensation, it would

have to have been for services rendered, which, in turn, would require O’Donnell to be an

employee of the federal government. O’Donnell, 880 C.D. 2019, 2020 WL 7413634 at

*9. The Dissent likewise would conclude that Section 303’s definition of compensation

as imported into the LTEA reasonably suggests that an employment relationship is

required. Dissenting Op. at 2.

       There is nothing in the plain language of Section 303 suggesting that an

employment nexus is a prerequisite for a payment to qualify as compensation. By

omitting employment as a prerequisite, the statute plainly does not require it.        See

Commonwealth v. Giulian, 141 A.3d 1262, 1268 (Pa. 2016) (“[A]lthough one is

admonished to listen attentively to what a statute says, one must also listen attentively to

what a statute does not say.”) (cleaned up). The plain language of Section 303 includes

30     While a qui tam payment is categorized most aptly as a taxable incentive payment,
it also meets Section 303’s definition of compensation for “similar remuneration for
services rendered.” 72 P.S. § 7303(a)(1)(i). The qui tam payment was rendered as
remuneration for O’Donnell’s services in providing useful information to the federal
government about his employer’s fraud and for initiating the qui tam action. See 31 U.S.C.
§ 3730 (d)(1) (tying the amount of the award to the level of contribution); NEC Corp., 11
F.3d at 139 (11th Cir. 1993) (“The FCA’'s qui tam provisions do not act as a penalty;
rather, they provide incentive to government ‘whistleblowers’ and compensate such
individuals for their time and trouble.”).

                                     [J-72-2021] - 26
“incentive payment” as compensation without regard to an employment relationship

between the payor and payee.31

       The Commonwealth Court’s non-statutory creation of an employment requirement

in Section 303 does not account for the enumerated categories of compensation

contained in Section 303 that plainly do not pertain to employment at all. For example,

commissions, fees, and tips routinely are provided outside of any employment

relationship. As the Department of Revenue notes, contractors who submit 1099-MISC

forms do so in order to report their non-employee compensation.32 The Tax Reform Code

generally recognizes non-employee compensation and requires withholding for such

compensation. 72 P.S. § 7316.2. Non-employee compensation further includes real

estate finder fees, referral fees, rewards for finding lost pets, and payments to artists and

tradespersons.33 There is no statutory basis for the Commonwealth Court’s narrowing of

taxable compensation in Pennsylvania.34

31     Finding ambiguity as to whether Section 303 requires compensation to be tied to
an employment relationship, the Dissent would apply the maxim that ambiguity in tax
statutes must be resolved in favor of the taxpayer to hold that the qui tam payment is not
taxable as compensation. See Dissenting Op. at 2-4. The statute’s omission of an
employment prerequisite does not render the statute ambiguous. Rather, this omission
reveals that the statute, by its plain terms, does not tie compensation to employment.
32     Department’s Amicus Curiae Br. at 10.
33     Department’s Amicus Curiae Br. at 11-12.
34     Our statutory interpretation is consistent with the Supreme Court of the United
States’ understanding of qui tam payments. In Vermont Agency of Natural Resources,
529 U.S. at 772, the High Court recognized that a relator has both “an interest in the
lawsuit” and “a concrete private interest” in the outcome. The relator’s interest in the
lawsuit (including providing evidence, initiating the action, continuing as a party, being
heard before dismissal, and objecting to the government’s settlement), demonstrates the
services provided by the relator. The qui tam payment vindicates the relator’s private
interest. This understanding demonstrates that the qui tam payment is an incentive
payment and “remuneration for services rendered.”

                                      [J-72-2021] - 27
        The Commonwealth Court’s holding is premised upon a disregard of the statute’s

plain language in favor of what that court perceived to be a more limited regulatory

definition of compensation. The Dissent likewise relies upon the regulation as a definition

tying compensation to employment. Dissenting Op. at 3. As noted, the Department’s

regulation provides that “compensation”

        includes items of remuneration received . . . for services rendered as an
        employee or casual employee, agent or officer of an individual, partnership,
        business or nonprofit corporation, or government agency. These items
        include salaries, wages, commissions, bonuses, stock options, incentive
        payments, fees, tips, dismissal, termination or severance payments, early
        retirement incentive payments and other additional compensation
        contingent upon retirement, including payments in excess of the scheduled
        or customary salaries provided for those who are not terminating service,
        rewards, vacation and holiday pay, paid leaves of absence, payments for
        unused vacation or sick leave, tax assumed by the employer, or casual
        employer signing bonuses, amounts received under employee benefit plans
        and deferred compensation arrangements, and other remuneration
        received for services rendered.

61 Pa. Code § 101.6(a).
        The regulation does not limit compensation to an employment relationship. Nor

does the regulation define compensation. It merely offers a non-exclusive list of common

examples of remuneration that the Department believes qualify as compensation. By

repeatedly describing “compensation” to “include” various forms of payments, the

regulation indicates its descriptive, non-exhaustive nature.        See Dechert LLT v.

Commonwealth, 998 A.2d 575, 581 (Pa. 2010) (providing that “include” is a word of

enlargement and not limitation). This indication is reinforced by that last sentence of the

regulation, providing a catch-all for compensation that mirrors Section 303 for “other

remuneration received for services rendered.” The regulation offers common examples

of items that the Department believes qualify as compensation, rather than an exhaustive

list.

                                     [J-72-2021] - 28
       Even assuming for argument’s sake a conflict between the statute and the

regulation, which there is not, courts cannot impose a regulatory requirement that is

contrary to the plain statutory language. See Commonwealth v. DiMeglio, 122 A.2d 77,

80 (Pa. 1956) (“The power of an administrative agency to prescribe rules and regulations

under a statute is not the power to make law, but only the power to adopt regulations to

carry into effect the will of the Legislature as expressed by the statute.”). Because the

statute does not make the taxability of remuneration contingent upon the recipient’s

employment status, remuneration for services rendered need not arise in an employment

or agency context.

       The Dissent posits that a qui tam payment is not compensation because a relator’s

actions in connection with the qui tam lawsuit can reasonably be viewed as providing

services to the relator himself, and not the federal government. Dissenting Op. at 2. The

Dissent relies upon Vermont Agency of Natural Resources as support for its position that

a relator’s private interest in a qui tam action lends ambiguity to the Tax Reform Code’s

statutory requirement that compensation be in exchange for “services rendered.”

Dissenting Op. at 4-5. Vermont Agency of Natural Resources does not support the

Dissent and, in fact, supports quite the opposite.

       In Vermont Agency of Natural Resources, the Court examined whether a relator

had standing under Article III of the United States Constitution to bring suit on behalf of

the United States. 529 U.S. at 771-78. “Article III judicial power exists only to redress or

otherwise to protect against injury to the complaining party.” Id. at 771 (citing Warth v.

Seldin, 422 U.S. 490, 499 (1975)). Article III standing requires a plaintiff to demonstrate

“injury in fact”—“a harm that is both concrete and actual or imminent, not conjectural or

                                     [J-72-2021] - 29
hypothetical.” Id. at 771 (cleaned up). To determine whether the relator had standing

under Article III, the High Court entertained and rejected two purported bases for standing

before finding one that fit the circumstances and afforded such standing to the relator.

       First, the Court examined whether the relator had standing as an agent of the

federal government, and concluded that he did not. Although the relator brought the

action in the government’s name, and would receive a portion of the government’s award,

it was also true that “the statute gives the relator himself an interest in the lawsuit, and

not merely the right to retain a fee out of the recovery.” Id. at 772 (emphasis in original).

Because the FCA afforded the relator a significant role in the proceedings of the lawsuit

itself, distinct from the role of the government, the Court was unable to conclude that the

relator was acting solely as the government’s agent. Id. Were the relator simply acting

as an agent of the federal government, there would be no Article III standing. Id. Because

the relator was not acting solely as an agent, the Court continued looking for another

basis for standing.

       The Court then examined whether the relator had Article III standing based upon

his own “injury in fact.” Although the relator had a “concrete private interest” in the “bounty

he will receive if the suit is successful,” this interest was not an “injury in fact” for purposes

of Article III standing because the payment was not compensation for the violation of the

relator’s legally protected right. Id at 772-73.

       Having found no agency standing or injury in fact, the High Court ultimately found

that the relator possessed representational standing under Article III: “The FCA can

reasonably be regarded as effecting a partial assignment of the Government’s damages

                                        [J-72-2021] - 30
claim[,]” essentially conferring “representational standing” on the part of the assignee. Id.

at 773.

       Because the High Court recognized the relator’s interest in the lawsuit and the

outcome, the Dissent believes that Vermont Agency of Natural Resources supports its

position that qui tam payments are not remuneration for services. According to the

Dissent, because the relator is “principally serving himself,” the relator is providing no

service to the government. Dissenting Op. at 5.

       Nothing in Vermont Agency of Natural Resources suggests that the relator’s role

in the litigation or interest in the award transforms the qui tam payment into something

other than an incentive payment or remuneration for services rendered. Rather, the

relator has both “an interest in the lawsuit” and “a concrete private interest” in the

outcome. Vermont Agency of Natural Resources, 529 U.S. at 772-73. The relator’s

interest in the lawsuit (including providing evidence, initiating the action, continuing as a

party, being heard before dismissal, and objecting to the government’s settlement),

demonstrates the services provided by the relator. The qui tam payment vindicates the

relator’s private interest. This understanding demonstrates that the qui tam payment is,

contrary to the Dissent, an incentive payment and “remuneration for services rendered.”

       Moreover, Vermont Agency of Natural Resources recognized that a relator acts in

two capacities: one serving the relator’s own interest in the lawsuit, 529 U.S. at 772, and

one representing the government through “a partial assignment of the Government’s

claim,” id. at 773. Even if the Dissent were correct that a relator’s private interest in the

outcome of a qui tam action somehow meant that the relator could not receive

remuneration for services rendered, this would not account for the distinct role that the

                                      [J-72-2021] - 31
relator serves as the government’s representative. As the government’s representative,

the relator is not “serving himself,” Dissenting. Op. at 5, but is serving the government’s

distinct interest.

       The Commonwealth Court opined that it would be “incongruous” to “encourage

individuals to ferret out government waste” while nonetheless “punish[ing] them by taxing

the proceeds for doing so.” 2020 WL 7413634 at *10. Regardless of the Commonwealth

Court’s views concerning incentives and disincentives arising from the law of taxation, the

judiciary is obligated to construe the plain terms of the statute. The federal government

itself, which created qui tam payments in the FCA, has also chosen to tax such payments

as gross income.35 The federal government and the General Assembly are aligned in

believing that taxing incentive payments is neither incongruous nor punitive.

       We cannot ignore a statute’s plain language in service of strictly construing tax

statutes against the government. 1 Pa.C.S. § 1928(b)(3) (directing courts to construe

strictly all provisions imposing taxes)); 1 Pa.C.S. § 1921(b) (“When the words of a statute

are clear and free from all ambiguity, the letter of it is not to be disregarded under the

pretext of pursuing its spirit.”). There is no ambiguity or reasonable doubt that Section

303 defines compensation to include incentive payments, or that qui tam actions are

incentive payments. We reverse the order of the Commonwealth Court.

       Justices Saylor, Dougherty and Mundy join the opinion.

35     See, e.g., United States ex rel. Kelly v. Boeing Co., 9 F.3d 743 (9th Cir. 1993);
Patrick v. Commissioner, 142 T.C. No. 5 (2014); United States ex rel. Green v. Northrop
Corp., 59 F.3d 953 (9th Cir. 1995); Campbell v. Commissioner, 658 F.3d 1255 (11th Cir.
2011); Bagley v. United States, 963 F.Supp.2d 982 (C.D.Cal. 2013).

                                     [J-72-2021] - 32
      Justice Todd files a dissenting opinion in which Chief Justice Baer and

Justice Donohue join.

                                   [J-72-2021] - 33