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District of Columbia includes qui tam tax fraud actions in the False Claims Act

On Behalf of | Sep 13, 2021 | Tax Law |

A freshly enacted Washington, D.C. Act A23-0564 will modify the District of Columbia’s False Claims Act. The amendment will allow qui tam actions for violations of the tax laws in the district. While the District had previously left the enforcement of its tax laws to government agencies exclusively, this new bill seeks to bring about a more proactive approach. 

What are qui tam actions? 

Qui tam actions are lawsuits that involve private citizens helping the prosecution may retain a fraction of the taxes and fraud penalties recovered by the government. For instance, the federal False Claims Act authorizes qui tam actions against entities that have defrauded the Internal Revenue Service (IRS).

One of your employees or business partners, for instance, could have privileged information related to your company’s failure to pay proper tax amounts. When they come forward with the information, they can file a qui tam lawsuit. If successful, the action makes them eligible to receive up to 30% of whatever amount the government recovers from or fines you. 

New changes to qui tam lawsuits in the District of Columbia 

The new bill, signed on January 13, 2021, by mayor Bowser will be effective if Congress fails to jointly disapprove it. It will effectively increase liability under the D.C. False Claims Act (“D.C. FCA”) to include tax violations. The tax-related crimes that could soon be prosecuted under the new law include seeking tax refunds or understating tax liabilities through false tax returns. 

This comes after the District of Columbia experienced heavy tax losses: $721 million in 2020 and an extra forecasted $774 million in 2021. Financial experts had even already predicted that some states and local governments will make numerous enforcements to recover funds from the private sector. 

The new D.C. bill will draw upon a parallel New York Statute enacted in 2010. The New York 2010 Fraud Enforcement and Recovery Act saw the state recovering more than $460 million in settlements resulting from tax-related False Claims Acts. In fact, New York’s biggest settlement resulting from False Claims Acts would not have been possible without the 2010 amendment. The settlement, which amounted to $330 million, originated from a tax fraud claim made by a whistleblower. 

What to expect

This new bill will encourage more whistleblowers to come forward. Private citizen whistleblowers expecting certain incentives after successful qui tam complaints will no longer be hesitant. This could leave your employees or business partners looking for reasons to incriminate your company, even when there are none. The help of a tax attorney may help you get your affairs in order or mount a defense when such lawsuits arrive.