Justice Department officials have recommended joining a federal whistleblower lawsuit aimed at clawing back sponsorship money from former professional cyclist Lance Armstrong, according to people familiar with the matter.

The Justice Department has been weighing the matter since 2010, when the suit was filed by Armstrong's former teammate Floyd Landis.

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All whistleblower suits are kept under seal, and neither the Justice Department nor Landis have acknowledged the suit's existence or the allegations. However, according to a person who has seen the lawsuit, Landis alleged that Armstrong and team managers defrauded the U.S. government when they accepted money from the U.S. Postal Service.

The Justice Department and Landis declined to comment.

The contract with the Postal Service required that the team refrain from using performance-enhancing drugs. Landis and, more recently, several other former teammates, said in affidavits that Armstrong was at the center of a sophisticated doping ring and knowingly flouted the contract.

The deadline for the Justice Department to join the suit is Thursday, the day Armstrong's much anticipated interview with Oprah Winfrey is scheduled to air. On the show, which was taped Monday afternoon, Armstrong admitted to his own use of performance-enhancing drugs, according to the Associated Press.

Landis sued on behalf of the government under the Federal False Claims Act, which allows citizens to sue for alleged fraud against the government, according to people familiar with the matter.

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Under the law, the government can intervene in Landis's suit, essentially pursuing the case on its own behalf. If it doesn't, Landis is free to carry on the action on his own. As a whistleblower, Landis could collect 30% of any money the government recovers.

The Postal Service paid a total of $30.6 million to the team's management company to sponsor the team from 2001 through 2004, according to a sponsorship agreement reviewed by The Wall Street Journal. The contract said "negative publicity" due to "alleged possession, use or sale of banned substances" by riders or team personnel would constitute an "event of default," as would a failure to take "action" if a rider violates a morals or drug clause.

Under the False Claims Act, if Armstrong and others are found to have violated the act, they could be on the hook for triple the amount of the total paid under the contract. That could mean damages of roughly $100 million.

Recently, Armstrong's legal team has been in negotiations with the Justice Department in an attempt to settle the suit, according to a person familiar with the matter.

The person said the negotiations between Armstrong's team and the Justice Department are far from being settled, with the two sides nowhere near an agreement.

Other defendants in the suit, according to the person who has seen it, include Thom Weisel, the former chairman of the management company that owned Armstrong's cycling team, and Johan Bruyneel, his longtime team director. A lawyer for Weisel said he couldn't comment. Bruyneel didn't return calls seeking comment.

The case has been investigated by the Justice Department's commercial litigation branch, according to several people familiar with the matter. Robert Chandler, a Justice Department attorney, has been interviewing potential witnesses in the case, according to people familiar with the matter. The case isn't related to a criminal lawsuit that was dropped in February.

Whistleblower attorneys say that to win, the Justice Department wouldn't have to prove that the Postal Service lost money—only that the defendants in the suit knowingly misrepresented themselves in the contract with the Postal Service.

Write to Reed Albergotti at reed.albergotti@wsj.com and Vanessa O'Connell at vanessa.oconnell@wsj.com