Whistleblower Tax Fraud Law Firm Hails New False Claims Act Legislation In New York Seeking to Expand Tax Fraud Liability
The Whistleblower Tax Fraud Lawyers at Brown, LLC are hailing the introduction of new New York False Claims Act legislation that expands whistleblower awards for insiders who expose fraud and ends some legal loopholes. The ongoing COVID-19 pandemic and the resulting loss of economic activity have placed immense financial pressure on many states. In response, some state legislatures are amending their False Claims Acts in hopes of raising revenue while also clamping down on tax fraud. New York legislators have introduced two bills that could dramatically broaden the reach of the state’s False Claims Act (N.Y. State Fin. Law §§ 189 et seq., the “NY FCA”) and spawn a host of new whistleblower tax fraud suits.
The first of these, Senate Bill S 8852, seeks to close a loophole in the NY FCA, which currently imposes liability only on individuals who affirmatively submit false records or statements in their tax filings. The bill would amend the law to include liability for those who knowingly avoid tax obligations by, among other things, refusing to file tax returns.
The second piece of legislation, Senate Bill S 8872, is probably more significant: it would do away with the requirement of proving that the defendant knowingly violated the tax law. In exchange for eliminating the knowledge requirement, the bill would limit the recovery in such actions to single damages, rather than the triple damages recovery ordinarily available. Triple damages would still be available where a knowing violation is proven.
Senate Bill S 8872, if enacted, will certainly generate new qui tam suits brought by private whistleblowers against individuals and entities that have not paid the full amount of taxes owed. In some cases, the NY FCA may even become the preferred method of tax enforcement by the State, because of its ten-year statute of limitations (in contrast to the three-year limitations period the State typically has to assert additional taxes).
Each year under the Federal False Claims Act billions of dollars of taxpayer dollars are recovered for frauds perpetrated by unscrupulous companies who overbill the government. With the latest blows to the economy, companies are looking to make up for lost revenue or catch up to where there pre-virus revenue should land and may take shortcuts, which may lead to an escalation of false claims that are actionable. With the extent of fraud, it is surprising that more states don’t enact rigid laws to incentivize whistleblowers to come forward. Laws like the False Claims Act that punish medicare fraud and reward whistleblowers are a win-win. The individual who puts their reputation on the line to expose the fraud may obtain a significant whistleblower award, and the taxpayers receive their monies back. States that are down in revenue should consider enacting more strident false claims act measures to synergistically build off that win-win paradigm.
Brown, LLC is closely monitoring these bills as they make their way through the state Assembly and Senate. If you know of a New York entity that is defrauding the state out of tax revenue, you should consult with one of the best whistleblower law firms that focus their practice on whistleblower lawsuits to learn your rights.
As of January 2022, the bills are still pending in the New York State Legislature, and have not yet been submitted for a vote. We will update this article when new information regarding these bills becomes available.