Last summer, then senator Eric Schneiderman shepherded through the New York legislature a bill to expand the state’s whistleblower statute to include tax fraud. Now, as the state’s new attorney general, Mr. Schneiderman has pledged to use the law to aggressively pursue tax evaders. Under the law, a citizen can bring a lawsuit against an individual or company with annual net revenue of over $1 million for defrauding the state of over $350,000 in tax revenue by making a false claim. Violators may be held liable for up to three times the amount of money actually owed to the state, as well as being required to pay penalties of up to $12,000 per false claim. As a reward for disclosing the fraud, whistleblowers can receive up to a 25 percent share of the amount recovered by the state through either settlement or judgment, if the state decides to pursue the case, and up to 30 percent of the amount recovered on behalf of the state if the state decides not to intervene in the case and the whistleblower proceeds on his or her own.
The New York law is the first state provision to allow whistleblowers to receive a reward for disclosing evidence of tax fraud. Other whistleblower statutes, including the federal False Claims Act, specifically exclude tax fraud – although the IRS has its own whistleblower provision to permit recovery for disclosure of schemes to defraud the federal government out of tax dollars.
We at Fraudfighters hope other states follow New York’s lead end expand their own whistleblower provisions to include tax fraud.