Monday, August 23, 2010

New Law Takes Aim at Wealthy Tax Cheats

August 23, 2010, 1:56 pm
NY Times

The tax man cometh — and now he has backup.

A little-noticed law signed by Gov. David A. Paterson this month could sharply expand investigations of wealthy tax cheats by empowering whistle-blowers to file lawsuits against them under the state’s False Claims Act (pdf).

The original act, passed in 2007, already allows such lawsuits, known as qui tam suits, to crack down on Medicaid fraud or contractors who overbill the state for goods and services.

But the new amendments, championed by Democrats in the Legislature, would expand the bill to allow for the recovery of tax revenue.
Experts said the bill, sponsored by State Senator Eric T. Schneiderman and the Assembly speaker, Sheldon Silver, would be the first of its kind in the nation.

“To my knowledge, this is the first one that imposes liability under a state False Claims Act for state tax fraud,” Cleveland Lawrence III, acting executive director of Taxpayers Against Fraud, a nonprofit group that lobbies for broader false claim laws.

Under the law, which takes effect Friday, suits can be filed only when the defendant makes more than a million dollars a year in net income and the damages to the state are $350,000 or more.

The law’s existing penalties pack a wallop: Those found to have defrauded the state through filing false statements or paperwork — like a fraudulent tax return — must pay triple damages. They also owe civil penalties of up to $12,000 for each false statement.

To cut down on frivolous lawsuits and assuage privacy concerns, qui tam tax lawsuits would have to be filed under seal through the office of the attorney general, who could dismiss any cases deemed frivolous. The bill’s advocates, including state tax officials, say they believe it could bring in as much as $25 million a year.
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