Last time, we mentioned that some states are currently looking at New York's whistleblower statute as a possible model for prosecuting tax fraud. As we noted, there are currently nine states which allow whistleblowers to pursue Qui Tam cases based on tax fraud. Not surprisingly, efforts to expand False Claims Act coverage to tax code violations are not universally supported.
Opponents of modifying state False Claims Act laws to allow for Qui Tam lawsuits based on tax fraud say that this will increase the possibility of nuisance suits--lawsuits filed for their ability to generate negatively publicity or for their settlement potential.
However, based on the success of New York's tax fraud qui tam law, it is clear that the law benefits the state and the whistleblower.
Despite the arguments of opponents of change, New York is a state which does allow Qui Tam litigation for tax fraud, and those who are considering pursuing such a case should work with an experienced attorney to build the strongest possible case. Building a strong Qui Tam case isn't necessarily easy, but a strong advocate can help a Qui Tam plaintiff through the process.
In addition to the requirements we mentioned last time--that the defendant must have a net income of at least $1 million for the taxable year and must have defrauded the state of over $350,000--a plaintiff must also prove that the defendant knowingly presented a false or fraudulent tax return, knowingly made or used false records or statements material to a tax return, or knowingly committed some other violation of tax laws. New York's False Claims Act also requires Qui Tam plaintiffs, in cases where the state chooses not to participate or authorize participation by a local government, to obtain approval from the attorney general before making a motion to compel the state Department of Taxation and Finance to disclose tax records.
Obtaining tax records is certainly an important step in building a strong tax fraud case under the False Claims Act, and working with an experienced attorney ensures that a Qui Tam plaintiff has sound guidance and zealous advocacy in obtaining these and other necessary records and building the best possible case.