Under the New York False Claims Act, the state’s attorney general, local governments or private whistleblowers — known as qui tam relators—can file lawsuits against those who defraud the government. The statute has traditionally been used to pursue wrongdoers who have defrauded New York in a number of different ways, from Medicaid fraud to overcharging the state for office supplies and school lunches. New York’s False Claims Act — like false claims acts in many other states — was modeled on the federal False Claims Act. But the federal False Claims Act specifically carves out tax fraud. That makes New York’s Act much better.
New York, because of the law passed in 2010, became the first-in-the-nation state program to allow tax fraud recoveries under a false claims act. The New York law is specifically “aimed at illegal offshore tax shelters.” An individual with knowledge of offshore tax evasion can assist New York in recovering lost tax revenues by bringing an action as a whistleblower. If such an action is successful, the whistleblower may share in up to 30 percent of the state’s recovery.
The New York Act, in order to avoid a deluge of minor, potentially harassing lawsuits, limits the tax fraud cause of action to Defendants with income or revenue exceeding $1 million annually and to allegations pleading damages exceeding $350,000. If liability for any false claim (including tax-related false claims) is established, the state will recover treble damages; penalties of at least $6,000 and up to $12,000 per violation; and fees and expenses (including the fees and expenses incurred by the qui tam relator’s counsel).
If a qui tam relator initiates the lawsuit, the relator files the complaint under seal and serves the attorney general — not the Defendants. This provision allows the government an opportunity to investigate the allegations of the complaint and determine how to proceed before a complaint is openly published. If the state intervenes in the lawsuit, the qui tam relator is generally entitled to 15 to 25 percent of the proceeds recovered from the Defendant. If, however, the state declines to intervene, and the relator successfully litigates the matter independently, the relator is generally entitled to 25 to 30 percent of the proceeds recovered.
The New York False Claims Act can go after both New York residents, as well as nonresident individuals or companies sheltering New York income. In other words, while the suit would seek to hold the New York taxpayer liable, the state could also seek redress from others who acted corruptly or in reckless disregard of tax obligations. Moreover, although such Defendants might expect damages to be measured at three times the amount of back taxes, Law360 points out that “case law and commentators suggest that the appropriate measure of damages may even be higher — three times the back taxes, interest and penalties.”
It’s significant that New York’s False Claims Act has a 10-year statute of limitations, which was explicitly made retroactive. As a result, New York can prosecute instances of tax evasion that predate federal crackdown on offshore accounts. The New York Act appears to be a very good one and it gives that state the opportunity to achieve in many instances something that other acts including the Federal Act, can’t do.
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