The government wants more than $100 million in return, a Justice Department filing in U.S. District Court in Washington says.
Armstrong, who confessed in January to doping for each of his record seven Tour de France victories, earned $17 million from the 1998-2004 Postal Service sponsorship, the Justice Department filing says.
That amount was more than 40 percent of the approximately $40 million the postal service paid to sponsor the USPS cycling team those years, the document says.
The government said in its lawsuit it sought to recover triple the amount of the sponsorship funds under the False Claims Act, which could bring a total of $120 million in damages.
Armstrong used prohibited drugs in the cycling races, which constitutes a breach of contract with the postal service, the department said in its complaint, filed late Tuesday, hours before the deadline to file its case.
The lawsuit also names former team Armstrong team Managing Director Johan Bruyneel and team management company Tailwind Sports LLC as defendants.
"Riders on the USPS-sponsored team, including Armstrong, knowingly caused material violations of the sponsorship agreements by regularly and systematically employing banned substances and methods to enhance their performance," the complaint says.
"Defendants were unjustly enriched to the extent of the payments and other benefits they received from the USPS, either directly or indirectly," the complains says.
Armstrong attorney Elliot Peters issued a statement describing the lawsuit as "opportunistic and insincere."
"The U.S. Postal Service benefited tremendously from its sponsorship of the cycling team," he said in the statement.
"The USPS was never the victim of fraud," Peters said. "Lance Armstrong rode his heart out for the USPS team, and gave the brand tremendous exposure during the sponsorship years."
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