As we have reported in Tax Analysts’ “Noonan’s Notes on Tax Practice,” in August 2010 New York became the first state in the nation to affirmatively authorize private citizens to bring treble damage False Claims Act cases against high-end taxpayers who knowingly engage in substantial tax evasion of their New York state and local tax obligations.* This potentially game-changing new law was sponsored by then State Senator Eric Schneiderman, who has repeatedly vowed to use the statute aggressively to pursue serious cases of substantial tax fraud in his new role New York’s attorney general.
Recent developments reflect the attorney general’s resolve to deliver on that promise. Shortly after assuming office, the attorney general created a new bureau in his office, the Taxpayer Protection Bureau. In the last few weeks, he appointed veteran litigator Randall Fox to head the bureau. Prior to his recent appointment, Mr. Fox had been handling False Claims Act cases in the attorney general’s Medicaid Fraud Control Unit, and before that he was a partner with a major New York law firm. Mr. Fox is now in the process of building the bureau, and he has reported that he already has a caseload of False Claims Act Cases, including several tax whistleblower cases.
Given the recent success of the IRS whistleblower program, it won’t be a surprise if Mr. Fox’s caseload of tax whistleblower cases grows rapidly in the coming months. Many of the thousands of whistleblowers with pending IRS cases involve delinquent taxpayers who also owe New York State and New York City significant back taxes. Undoubtedly IRS whistleblowers in such cases will be looking closely at the New York program to determine if their case would support a false claims action in New York.
*To limit the reach of the false claims tax whistleblower provisions to significant tax evasion by high-end taxpayers, the new law only allows tax whistleblowers to bring cases where the taxpayer has net sales or income of over $1 million in any year subject to the claim and where the tax damages suffered exceed $350,000.
