Whistleblower Insider interviewed Randy M. Fox, Bureau Chief of the Taxpayer Protection Bureau at the New York Attorney General’s Office, about the recent tax fraud case against the famous New York tailor, Mohanbhai “Mohan” Ramchandani, and the good work Mr. Fox’s office is doing under the New York False Claims Act.
The Mohan case is the first resolution of a tax case brought under the recently-revised New York False Claims Act. Mohan, a sharply-dressed, self-marketed tailor to the stars, pled guilty to felony tax fraud charges involving a ten-year scheme to evade paying New York State sales and income taxes. As reported in one of our prior posts, Mohan underreported his retail earnings and falsified his taxes to comport with his faith in numerology – the belief that numbers have a special significance or symbolism. Rather than bring him greater success, however, numerology left a trail that gave the scheme away. For nearly all of his quarterly tax filings, he manipulated the numbers so that they added up to multiples of ten.
The tax fraud claims against Mohan were first raised by a former employee under the New York State False Claims Act. The Attorney General’s investigation revealed that Mohan knowingly failed to pay at least $1.7 million in state and local sales taxes and at least $256,000 in state and local personal income taxes. Mohan and his business have agreed to pay $5.5 million dollars in damages and penalties as part of the settlement. The whistleblower will receive $1.1 million for his information.
Mr. Fox was instrumental in the investigation and prosecution of Mohan under the New York False Claims Act. Whistleblower Insider discussed with him the investigation and prosecution of the Mohan case, tax fraud deterrence under the revised New York False Claims Act and why tax fraud whistleblowers should bring claims to the Taxpayer Protection Bureau.
Whistleblower Insider: I found the “Mohan” tax fraud case particularly interesting because the basis of Mohan’s fraudulent tax filings was his belief in numerology. How did the investigators uncover that part of the scheme?
Randy Fox: The numerology-affected numbers were a signpost to Mr. Ramchandani’s tax fraud. It was brought to our attention by the whistleblower, who had knowledge of it from his own experience working for Mohan’s Custom Tailors. Nearly all of the business’ quarterly sales tax filings featured manipulated numbers that reflected the numerology idea. I should note that belief in numerology is not uncommon. What we were interested in is that Ramchandani and the business use of multiples of ten helped demonstrate the fraud because honest, non-manipulated numbers could not have been so consistent.
Whistleblower Insider: What are some of the most interesting tax frauds uncovered by your office?
Randy Fox: Most of our matters are confidential or under seal. The Ramchandani/Mohan’s Custom Tailors case is our first resolution of a tax False Claims Act case. We also have a public tax whistleblower case pending against Sprint Nextel Corporation, in which we claim Sprint, acting contrary to all other major wireless companies, failed to collect and pay sales taxes on its flat monthly charges. It underpaid more than $100 million since 2005.
Whistleblower Insider: The New York False Claims Act is unique in that it allows whistleblowers to come forward with claims about substantial violations of the tax laws. Since the 2010 amendment, has the Bureau received many tips or whistleblowers who have come forward?
Randy Fox: Attorney General Schneiderman authored the 2010 amendments to the False Claims Act when he was a state senator, and one of his first acts as Attorney General in January of 2011 was to create the Taxpayer Protection Bureau to fight against fraud that victimizes the government, including tax fraud. We have had a good number of tax whistleblowers come forward. I have also heard anecdotally that there has been some attitude adjustment in the tax world because of Attorney General Schneiderman’s amendment and the work of the bureau. I believe that companies and persons are increasingly recognizing that the incentivizing of whistleblowers creates a powerful tool for tax enforcement; would-be fraudsters realize that frauds will be caught.
Whistleblower Insider: Why should a whistleblower bring a tax fraud matter to the Taxpayer Protection Bureau rather than to the federal government, such as the IRS?
Randy Fox: The IRS has a whistleblower program that also offers incentives to whistleblowers, and we have had instances where whistleblowers have come to both us and the IRS Whistleblower Office. Our whistleblower program follows a different model than the IRS. We can recover treble damages and penalties and have a litigation-based approach, which includes the transparency of the litigation process. In doing so we work closely with the New York State Department of Taxation and Finance, which is a valuable partner in our tax cases. The IRS program is more audit based, and some have taken issue with its lower degree of transparency. Another difference to keep in mind is that there are different taxes at the state and local level than there are at the federal level. For example, the IRS would not be involved in issues of sales tax, which are only state and local taxes. Even with these differences, there are some excellent opportunities for coordination and cooperation of our agencies in fighting tax fraud.
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