'Bounty hunting' for tax violators: Qui tam claims.

• Author: Heroux, Mark

A qui tam action is a relatively unknown tool in the toolbox of tax enforcement that is growing in importance in some states. Qui tarn is short for the Latin phrase qui tarn pro domino rege quam pro se ipso in hacparte sequitur, which means "who brings the action for the king as well as for himself" (Black's Law Dictionary (8th ed. West 2004)). A qui tarn action is a type of whistleblower lawsuit brought by a private party, called a relator, on the government's behalf to prevent fraud and assist the government in recovering funds that have been "stolen" from the government. The relator, who files the suit under a statute known as a false claims act (FCA), usually receives a share of the monetary damages recovered by the government as a result of the qui tarn action. A qui tarn lawsuit can be costly for a taxpayer accused of wrongdoing since damages may include three times the amount of the actual losses to the state, plus attorneys' fees.

While the federal FCA expressly excludes claims under the Internal Revenue Code, many states have adopted their own FCAs. Some states specifically prohibit tax actions in general or exclude specific tax types.

New York

As of this writing, New York's FCA is the only state statute that broadly authorizes lawsuits against taxpayers for false tax claims (compare federal False Claims Act [section]3729(d) (31 U.S.C. [section]3729(d)) to N.Y. Fin. Law [section]189(4); see also N.Y. Attorney General, Press Release (12/21/18)). The New York FCA was amended in 2010 to include "claims... made under the tax law" (N.Y. L. 2010, ch. 379, [section]3). As a result, the New York FCA became a powerful tool, enhancing the state's tax collection capabilities.

To date, the largest recovery of taxes fraudulently withheld from New York state resulted from the attorney general's (AG's) civil enforcement action commenced in 2012 against Sprint Nextel Corp., which grew out of a 2011 qui tarn suit by a private company; both lawsuits were filed under the New York FCA (People v. Sprint Nextel Corp., 26 N.Y.3d 98 (2015)) and alleged that Sprint had unlawfully avoided paying certain sales taxes. In affirming a lower court's decision denying Sprint's motion to dismiss the AG's complaint, the court concluded, among other things, that damages recoverable under the New York FCA are not barred by the U.S. Constitution's ex post facto clause (which addresses the unfairness of a new law's penalizing prior conduct after the fact). This decision...