TAX FRAUD AFFECTING NEW YORK
Recent amendments to New York State’s False Claims Act (New York State Finance Law Chapter 56, Article XIII) allow whistleblowers to receive awards for providing information about large-scale tax fraud. The strengthened bill passed the state legislature unanimously and was signed into law on August 16, 2010. The NYFCA, like many other states’ false claims laws, is modeled on the federal false claims law, now with the significant difference that New York is the only state that expressly allows their False Claims Act to be used to prosecute tax fraud.
In order for New York to pursue an action for tax fraud under the state false claims law, the damages claimed must be $350,000 or more, and the company or individual against whom the action is brought must earn $1 million or more per year. The amended law makes violators liable for treble damages plus fines of $6,000 to $12,000 per violation, and provides for awards to whistleblowers of 15-25% of the State’s recovery. The types of tax fraud that may be prosecuted under the law include not reporting or misreporting workers, keeping falsified company books, claiming false or fraudulent tax deductions, hiding offshore accounts, and misrepresenting place of residency. The law also applies to those who commit fraud by not filing, because the law is applicable to any false record or statement material to a company or individual’s tax obligation.
The New York False Claims Act also includes increased protection for whistleblowers, including a provision prohibiting “blacklisting” of employees in their chosen industry and a provision preventing employers from suing employees who use internal documents to prove wrongdoing in a qui tam case.
Eric Schneiderman, the original supporter of the bill in the state Senate, is now New York Attorney General. He has established a Taxpayer Protection Unit (with investigators and prosecutors, similar to other state and federal anti-fraud units), and he promises to prosecute tax cheats aggressively. In a January 27, 2011 public statement about the new division, he said: “Today's announcement is a signal to anyone thinking of ripping off New York taxpayers: We will go after you with every tool we have, and you will pay the price for these crimes. The taxpayers of this state deserve nothing less.”
The New York amendments are predicted to deter tax fraud, lower the cost of investigation while increasing recoveries, and lead to the passage of similar laws in other states. With more incentive for individuals to step forward and report tax fraud, it becomes riskier for companies and individuals to engage in fraudulent practices. The whistleblower provision also effectively puts the government’s eyes and ears in more places, leading to more and better tips for investigation and an “insider” ability to bring new information to light. According to the national, non-profit, public interest organization Taxpayers Against Fraud: “Because New York is a major financial center, we think the state will be a bellwether for the nation in the arena of tax recovery. Without a doubt, the New York law will be used as a cat's-paw to illuminate national tax fraud cases that have tentacles in New York.”
Vogel, Slade & Goldstein specializes in qui tam cases and has been successfully representing whistleblowers in cases involving defense procurement fraud, health care fraud, and other FCA-related actions for 21 years. With attorneys licensed in California, New York, Maryland and Washington, D.C., the firm frequently files cases in New York and often collaborates with attorneys from other firms in other states. For tax fraud cases filed under NYFCA, the firm would engage experienced tax counsel or accountants as appropriate.