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D.C. Council Passes Amendment that Expands D.C. False Claims Act to Cover Tax Fraud

Posted  January 8, 2021

The D.C. Council has passed, by veto-proof majority, an amendment to its False Claims Act that expands the scope of the Act to cover tax fraud claims. The amended D.C. FCA will cover tax fraud claims against people and entities that file taxes in D.C., report at least $1 million in income, and understate their tax liability or seek a tax refund resulting in damages of $350,000 or more.  D.C. joins New York and Guam, which also allow whistleblowers to bring tax-related claims under their respective False Claims Act. Whistleblowers may also submit information about federal tax violations via the IRS whistleblower program. In 2019, the IRS paid over $120 million in awards to whistleblowers.

Constantine Cannon’s Michael Ronickher testified before the D.C. Council in favor of the amendment, arguing that the amendment would “extend the government’s reach by using whistleblower to level a playing field characterized by asymmetric information and tax cheats’ active concealment.” He pointed out that New York’s False Claims Act has been immensely successful since it was enacted in 2010:

  • In December 2018, Sprint paid $330 million to settle a whistleblower action alleging it knowingly failed to pay state sales taxes.
  • In related settlements, in October 2018, an investment manager agreed to pay $30 million, and in April 2017, a hedge fund sponsor and its top executives agreed to pay $40 million, all to resolve allegations that originated with a whistleblower that they had failed to pay millions in New York State income tax on performance-fee income.
  • In October 2017, Yankee Clipper Food Services I Corporation was convicted of a multi-year scheme to avoid paying New York taxes, after an investigation that was kicked off by a whistleblower. Together with other entities involved in the scheme, it paid $13 million to the state.
  • In August 2016, a Minnesota pillow company paid $1.1 million to resolve a whistleblower suit alleging it knowingly failed to collect state and local sales taxes on website and telephone sales to New York residents.
  • In August 2014, Topline Appliance Center agreed to pay $1.56 million to settle a false claims lawsuit that accused the company and its owner of failing to collect and pay New York sales taxes and corporate franchise taxes for nearly 10 years.
  • In March 2013, Mohanbhai Ramchandani, owner of a celebrity custom clothing business, paid $5.5 million to settle a whistleblower’s claims that he failed to pay state and local sales taxes that his business charged to customers.
  • In April 2012, the New York Attorney General intervened in a whistleblower action alleging Sprint fraudulently failed to collect and pay more than $100 million in New York sales taxes for wireless services since July 2005.

Whistleblowers are an essential part of uncovering fraud, as demonstrated by these recoveries under New York’s FCA. D.C.’s newly-expanded False Claims Act promises to serve as an equally important mechanism to identify tax fraud and ensure necessary tax dollars end up where they belong.

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Tagged in: FCA State, IRS Whistleblower Reward Program, Legislation and Regulation News, Tax Fraud,


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