Qui Tam Attorneys Explain How Whistleblowers on Tax Fraud Can Recover under New York State's False Claims Act

As of August 27, 2010, the New York False Claims Act (N.Y. State Fin. Law § 187 et seq.) permits whistleblowers to bring qui tam claims for tax fraud. Prior to the amendments, the New York False Claims Act, just like the Federal False Claims Act, expressly excluded the false claims based upon statements and records made under the tax law.

Opening the door to qui tam lawsuits for tax fraud brought by accountants, bookkeepers, employees of banks, accounting firms, and other businesses that handle tax matters, a whistleblower can now bring a qui tam lawsuit against a person or business that makes more than $1 million in annual net income and defrauds the State of New York of more than $350,000 by knowingly making a false claim¹.

Potential scenarios which would be actionable under the New York False Claims Act now include a hedge fund that is hiding funds in an offshore account, a New York based business owner who tries to claim an out-of-state exemption, a store that doesn’t turn over sales taxes, a company that hires workers off the books, or even a business that takes tax credits based on fraudulent job creation claims.

If the whistleblower lawsuit results in a finding of liability, the state may impose the highest civil penalties possible. This includes making the guilty party pay back three times the amount of money he or she defrauded the government and/or civil penalties of up to $12,000 for each false claim.

The incentive for whistleblowers is enormous. The whistleblower could get up to 30 percent of the total collected by the State in a case where the government does not intervene and up to 25 percent if the government intervenes in the matter.

¹ See the relevant amendments to New York State False Claims Act.

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