Only two state False Claims Acts currently include a tax provision

The District of Columbia is one of 31 “states” to have its own false claims act. Now, the district is considering legislation amending its False Claims Act to include tax fraud.

The proposed amendment permits a false claims actions against a person so long as they “reported net income, sales, or revenue totaling $1 million or more in a tax filing to which that claim, record, or statement pertained, and the damages pleaded in the action total $350,000 or more.” Because the current statute prohibits a tax claim, this would be a major amendment.

Even the federal False Claims Act does not include tax fraud claims. Instead, the federal government relies upon an IRS whistleblower statute. Frequently, state tax fraud falls outside the scope of the IRS, as is the case with sales tax or ad valorem taxes. For this reason, New York and Illinois are two states that have effectively utilized a tax provision in their False Claims Act. In fact, New York state’s largest qui tam settlement was under this provision, when cell phone company Sprint paid $330 million to settle claims that it had avoided collecting and paying taxes on certain wireless phone plans.

Although few states have tax reporting statutes, D.C. is already one of them! D.C. Code Ann. § 47-4111 provides up to a 10% reward on any recovery to tax informants. But simply put, there is no reason not to expand the state false claims acts to motivate as many whistleblowers as possible and to maximize awards. Our firm recently filed a federal IRS whistleblower claim that had a substantial state tax fraud component; however, because there is no state provision, the IRS is unlikely to share its recovery with the state government.

If you are aware of someone cheating on their taxes, whether an individual or a company, please contact our firm for a free evaluation. IRS Whistleblower cases may often be filed anonymously.