New York is leading the way at preventing tax fraud at the state level becoming the first state to creates a reward for whistleblowers. The amendment to New York’s False Claims Act will provide for an award to the whistleblower so long as the defrauding taxpayer earns more than $1 million in annual net income and defrauds the state of more than $350,000.
The whistleblower may earn up to 30 percent if he brings the case alone and up to 25 percent if the government decides to intervene. These percentages are based upon a number of factors including the amount of the whistleblower’s assistance.
As reported on The Post Standard, “The tax department guesses that billions of tax dollars go unpaid every year. In recent years, starting with Gov. Eliot Spitzer, the state has poured money into the department’s enforcement unit for staff, sting operations and sophisticated data collection systems to bust tax cheats. Spitzer appointed Comiskey to lead the effort and he set a record in his first year, bringing in $3 billion — $1 billion more than the year before. The effort continued under Gov. David Paterson. This year’s state budget relied on $221 million in extra tax fraud collections to help close the budget gap.
“New York state’s been exceptionally aggressive in the last few years during the budget crisis at collecting any source of tax revenue they can find, fairly or unfairly,” said Tim Lynn, a lawyer at Green & Seifter, an expert in business tax credits. “This is another weapon in their arsenal to cure their budget problems.”
Lynn said he suspects cases could come in the area of sales taxes or fuel and highway use taxes — the kinds of taxes where employees are aware of the amount of money that should have been paid. It is less likely there will be cases involving income taxes, which are confidential and handled by bookkeepers, he said.
The state first passed a whistle-blower law, called the False Claims Act, in 2007. It is modeled after the federal law. Until now, the law has mostly been used in Medicaid fraud cases. The old state law, like the federal law, specifically exempted tax fraud.
In three years, Medicaid fraud cases brought under the False Claims Act have recovered about $200 million for the state.
By 2014, the state estimates it will recover about $20 million a year from tax fraud.
Schneiderman likes to call it “the false claims act on steroids.”