In United States ex rel. Palmer v. Tata Consulting Services, Ltd., No. 25-40368 (5th Cir. Apr. 29, 2026), the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of a qui tam relator’s reverse false claims under the False Claims Act (“FCA”), holding that an employer has no automatic “obligation” to pay higher visa fees for visas it never applied for and no obligation to withhold additional payroll taxes on wages it never paid. Instead, because that obligation to pay the appropriate amount to the government is “contingent” on the employer’s application for the appropriate visas or properly paying wages, it does not comport with the FCA’s definition of an obligation.

The decision adds the Fifth Circuit’s voice to a growing consensus of appellate authority rejecting the theory that immigration fraud, standing alone, can give rise to reverse FCA liability — and provides important clarity for any entity navigating the outer limits of the FCA’s “obligation” requirement.

Reverse False Claims

A defendant may be held liable for a “reverse false claim” where it has an obligation to pay or remit monies to the government but does not do so. Relators have increasingly used reverse false claims theories to create alternative paths to a verdict. That is, even if the materiality, scienter, and falsity elements are not all present when the defendant billed the government, then surely by retaining dollars that the relator alleges were improperly paid the Defendant would have violated the FCA.

A common form of reverse false claim liability is based on “overpayment.” These claims arise from the retention of monies that should have been returned to the government. Under the amendments enacted by the Affordable Care Act, an overpayment must be reported and returned within 60 days of the date which the overpayment was identified, as required by 42 U.S.C. § 1320a-7k(d)(2).

While statutes compelling the return of actual overpayment continue to impose actionable obligations under the FCA, the Fifth Circuit took another step in foreclosing some of the other theories a relator or the government could rely on to establish such an obligation.

Background

Jack Palmer was hired by Comcast in 2016 to audit the immigration practices of Tata Consulting Services, Ltd. (“Tata”), a major India-based IT and professional services firm with roughly 30,000 workers in the United States. According to Palmer’s complaint, approximately 75 percent of Tata’s U.S. workforce required either an H-1B visa, an L-1A visa, or a B-1 visa. Each visa type carries different costs, requirements, and restrictions. H-1B visas — intended for temporary workers in specialized fields — are the most expensive and subject to an annual cap and lottery system, with total fees of approximately $6,460 per visa during the relevant period. L-1A visas, which permit cross-border transfers of managers, cost approximately $5,460 and carry no lottery or wage requirements. B-1 visas, intended for short-term business visitors, required only a $160 application fee.

Palmer alleged that his audit revealed a sweeping visa fraud scheme. In his telling, Tata applied for cheaper L-1A visas for non-managerial employees and then assigned those employees to perform skilled work properly reserved for H-1B holders. Similarly, Palmer alleged that Tata obtained large numbers of B-1 visas for workers performing both skilled and unskilled labor in violation of federal law. Tata then allegedly edited employees’ personnel files after the fact to make their records match their visa classifications rather than their actual roles. Palmer also alleged that Tata systematically underpaid H-1B workers relative to their American counterparts, in violation of federal wage regulations.

Palmer filed a qui tam action under the FCA in January 2017. After several years of discovery, the United States declined to intervene in August 2022, and Palmer continued prosecuting the case on behalf of the government. His amended complaint framed the claims as “reverse” false claims under 31 U.S.C. § 3729(a)(1)(G), advancing two theories: first, that Tata avoided an obligation to pay higher visa fees by applying for cheaper visa types under false pretenses; and second, that Tata’s systematic underpayment of wages necessarily led to lower federal payroll tax withholdings, cheating the government of tax revenue. 

Palmer’s theory was simple: by making deliberate choices to reduce the cost of its visas and underpaying wages, Tata did not pay the government money it should have. 

Simple as Palmer’s theory was, the district court dismissed both theories under Rule 12(b)(6), concluding that Tata had no “obligation to pay or transmit money” for visas it never sought, nor any obligation to withhold taxes on wages it never paid. Palmer appealed only the dismissal of his reverse FCA claims.

Fifth Circuit’s Analysis and Holding

Writing for a panel that included Judges Willett and Douglas, Judge Cory T. Wilson began by framing the legal landscape. The FCA, the court emphasized, is not “an all-purpose antifraud statute,” or, echoing the oft-quoted refrain, “a vehicle for punishing garden-variety breaches of contract or regulatory violations.” While the statute is most commonly associated with defendants who use false pretenses to obtain government payments, it also reaches the inverse situation—where a defendant “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” The “central question” in any reverse false claims case is whether the defendant was under an “obligation” to pay money to the federal government.

The FCA defines “obligation” as “an established duty” to pay the government, arising from a contractual relationship, “from statute or regulation,” or from the retention of an overpayment. Drawing on its own precedent and decisions from other circuits, the court underscored that “obligations to pay that are merely potential or contingent” cannot support reverse false claims liability. There must be a “present duty” to pay the government, and that duty must be “immediately due.”

The Visa Fee Theory

Palmer’s first theory was that federal labor regulations required Tata to pay H-1B visa fees because the work its employees performed called for H-1B visas, and that Tata improperly avoided this obligation by applying for cheaper visa types instead. The court rejected this argument. The regulations Palmer cited merely require payments corresponding to the visas actually sought — they “create no freestanding obligation to pay fees for a specific visa type.” Because Tata never applied for H-1B visas for the employees in question, its duty to pay H-1B fees never materialized.

Palmer also argued that once Tata assigned non-H-1B visa holders to perform H-1B-level work, regulations requiring new or amended petitions triggered an immediate obligation to pay higher visa fees. The court found this argument rested on “similarly weak footing,” reasoning that the amendment regulations only require employers to adjust petitions for visas of the same type—they do not require applications for an entirely new visa category.

Significantly, the court noted that every circuit court to address the question had reached the same conclusion. The D.C. Circuit, in a case involving the same defendant, held that immigration regulations “only oblige employers to pay fees on the visas for which they applied.” The Second Circuit held that “an obligation to pay higher visa application fees does not exist by the mere fact of a violation of immigration laws because that violation does not trigger an immediate and self-executing duty to pay.” And the Ninth Circuit similarly held that defendants “had no ‘established duty’ to pay for visas for which they did not apply.”

The court also addressed and rejected the sole contrary authority: the district court decision in Franchitti v. Cognizant Technology Solutions Corp., 555 F. Supp. 3d 63 (D.N.J. 2021). The Franchitti court had held that a cognizable FCA “obligation” accrued upon submission of inaccurate visa applications, but the Fifth Circuit found its reasoning unpersuasive, noting that it relied on factually inapposite precedent and had been “roundly rejected by every court to contemplate it.” The court also noted that the Third Circuit had recently granted interlocutory review of the Franchitti decision. That appeal is docketed with the Third Circuit at 25-8042.

The Tax Withholding Theory

Palmer’s second theory was that Tata’s systematic underpayment of visa-dependent employees in violation of federal wage regulations necessarily resulted in lower federal payroll tax withholdings, depriving the government of revenue. This argument was designed to circumvent the FCA’s “tax bar,” which prohibits relators from basing an FCA claim on tax violations.

The court rejected this theory as well. The regulations at issue do not impose any independent obligation to transmit money to the government; they only require the payment of certain wages to employees. The court explained that what counts as “appropriate” withholding under the Internal Revenue Code is determined by wages actually paid, not wages that should have been paid. “Without paying higher wages to workers, Tata was thus not required to withhold more in taxes.”

The court further observed that any enforcement mechanism under the relevant immigration statute was contingent on a negative finding by the Secretary of Labor—a finding that never occurred. Once again, every circuit court to address similar claims had reached the same result. The court warned that “[h]olding otherwise would transform every failure to pay employees the wages required by federal law into a reverse false claim under the FCA,” an outcome that “flatly contradicts the FCA’s language, the Supreme Court’s cabining the FCA’s reach, and unanimous precedent indicating that unpaid taxes fall outside the scope of the FCA.”

Key Takeaways

The Fifth Circuit’s decision in Palmer v. Tata Consulting Services reinforces what is now settled law across every circuit to consider the issue: the FCA’s reverse false claims provision requires an “established duty” to pay the government—not a potential or contingent one. The ruling carries significance well beyond the immigration context. Any company that interacts with a federal regulatory or fee-based regime—whether in government contracting, customs, healthcare, or environmental compliance—should take note of the court’s firm line between regulatory violations that may carry their own penalties and the kind of “established” payment obligations that can support reverse FCA liability.

For potential defendants, the decision offers a powerful framework for pushing back against creative relator theories that attempt to recast ordinary regulatory noncompliance as an avoided “obligation” under the FCA. At the same time, the opinion is a reminder that the FCA’s reverse false claims provision remains a potent tool where a defendant has a present, established duty to transmit money to the government and knowingly sidesteps it—the key is that the duty must exist independent of the very misconduct alleged.

Where relators attempt to transform alleged misconduct into not only affirmative false claims but also into reverse false claims—by arguing that the defendant received and retained funds as a result of that misconduct—the court’s holding casts serious doubt on the viability of such reverse false claims theories. Where scienter or materiality are lacking or dubious, defendants may also find success casting those reverse claims as predicated on a contingent obligation that the Government deems initial payment improper, and without an actual determination the “self-executing” obligation would not have materialized. If overpayment requires actual identification of the improperly paid sum, does a mere allegation by a relator create such a duty to repay? The Fifth Circuit’s holding would seem to, at minimum, rust the hinges of, if not altogether lock, the backdoor relators often try to sneak liability through.

With the Third Circuit’s pending review of the lone outlier Franchitti decision, this area of FCA law appears to be converging toward a clear and uniform rule—one that should give comfort to regulated entities while preserving the statute’s bite where genuine payment obligations are in-play.

Reed Smith will continue to track developments regarding False Claims Act litigation. If you have any questions about this litigation in particular or False Claims Act in general, please do not hesitate to reach out to the health care lawyers at Reed Smith.