- Associated Press - Wednesday, June 5, 2013

RICHMOND — Attorney General Kenneth T. Cuccinelli II said Wednesday that the Internal Revenue Service is blocking the release of $125 million owed to Virginia from a Medicaid fraud settlement.

The state is entitled to the money because it led an investigation that resulted in Abbott Laboratories paying $1.5 billion to settle allegations that it promoted an anti-seizure drug for uses that were not approved by the Food and Drug Administration, Mr. Cuccinelli said at a news conference. A federal judge in Abingdon, Va., approved the settlement in October.

Mr. Cuccinelli, a Republican, said his office earmarked most of its $125 million share of the asset forfeiture portion of the settlement for local police and sheriffs’ departments to buy bulletproof vests, vehicles and other equipment. He said nobody the federal government has disputed that Virginia is entitled to the money, but the IRS has refused to complete a simple two-page form that would allow the Treasury Department to cut a check.

“For months we thought this was just incompetence by the IRS, but with its refusal to properly fill out fairly simple paperwork for an entire year, we are left to wonder if this involves more deliberate motives,” Mr. Cuccinelli said.

An IRS spokesman in Washington did not immediately respond to telephone and email requests for comment.

The Republican candidate for governor has had other high-profile clashes with the federal government, including an unsuccessful lawsuit challenging the Obama administration’s health care reform law. The IRS has been under fire recently for targeting conservative political groups for additional scrutiny.

Mr. Cuccinelli said he could not explain why the IRS is blocking the money. His office has not communicated directly with the agency, Mr. Cuccinelli said, but has had some members of Virginia’s congressional delegations relay the concerns.

“We thought that would be a more effective way of communicating,” he said.

Mr. Cuccinelli said his office has been dealing with the Treasury Department’s asset forfeiture office, which is getting no answers from the IRS.

According to Mr. Cuccinelli, the Abbott Laboratories case marked the largest Medicaid fraud recovery in U.S. history resulting from a state-led investigation. It included a criminal fine and forfeiture of $700 million and civil settlements with the federal government and states totaling $800 million.

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