New York Awards Whistleblower $300,000 for Reporting Tax Evasion Scheme

New York continued to crack down on tax cheats under its strengthened False Claims Act (FCA), awarding a whistleblower more than $300,000 for reporting an out-of-state retailer’s failure to collect sales tax on high-end appliances it delivered to New York customers.

In 2010 New York became the first state to empower citizens to sue tax cheats on its behalf, a provision not included in the federal FCA or most other state FCAs. False Claims Acts generally penalize fraud that’s committed against the government; their qui tam provisions allow whistleblowers to sue on behalf of their fellow citizens — and to claim a share of any recovered funds as a reward.

On August 22, New York State Attorney General Eric T. Schneiderman announced a $1.56 million settlement against Topline Appliance Center. This settlement was the largest tax-related recovery resulting from an action filed under the New York FCA.

Topline, a New Jersey company, sells and delivers appliances to New York customers. A whistleblower filed a complaint alleging violations by Topline of New York’s FCA. Specifically, the whistleblower alleged that Topline failed to collect and pay sales and corporate franchise taxes to New York over nearly a ten-year period. A state investigation found that Topline and its principal owner evaded about $668,000 in taxes, giving it an unfair advantage over New York-based appliance stores.

The settlement demonstrates the effectiveness of New York’s recent expansion of its FCA statute.

The federal FCA and most state FCAs specifically exclude false claims made pursuant to the tax code. But in 2010, Schneiderman, at the time a New York state senator, pushed through amendments to the New York FCA to reverse the tax exclusion and also to extend the statute of limitations from six years to ten years.

About a year later, when Schneiderman became Attorney General, he created the Taxpayer Protection Bureau to investigate and prosecute fraud cases using the NY FCA.

Tagged: Fraud Types, New York False Claims Act, Tax Fraud, Whistleblower Laws (State/Local)