The state legislature in New York is attempting for the third time to change the whistleblower law that does not apply to those wealthy individuals or corporations who intentionally avoid paying required taxes by not filing documents. While whistleblower lawsuits that allege false records to cheat on taxes have led to state and local governments recouping hundreds of millions of dollars, the current legislation does not cover instances where false records were not used.
Emails reveal that the Legislature’s proposal drew pushback from the country’s “Big Four” public accounting firms that work for many of the world’s biggest corporations. Gov. Kathy Hochul has twice issued last-minute vetoes of the Legislature’s bills. The State Assembly and Senate have included the measure in their state budget plans, seeking to win approval in broader budget negotiations ahead of an April 1 deadline for an on-time agreement.
New York passed the False Claims Act in 2007, allowing whistleblowers to sue and allege the state or a local government had been defrauded. In 2010, the law was expanded to allow lawsuits alleging that wealthy people or corporations sought to avoid state or local taxes by knowingly submitting false “claims, records, or statements,” including false tax returns.
If successful, the whistleblower receives a share of the award or settlement, with the government keeping the bulk of it. The State Attorney General’s Office and local governments have the option of joining a lawsuit on the plaintiff’s side. If they decline, the whistleblower must stake far more of the legal costs, but receives a greater percentage of the award if successful.
In 2013, the False Claims Act was expanded to allow whistleblower lawsuits alleging New York governments were being defrauded, even in instances where false records were not used. But then-Senate Majority Leader Dean Skelos, a Republican, “insisted on a loophole that exempted large corporate and wealthy tax cheats,” according to Gregory Krakower, an attorney who served as then-State Attorney General Eric Schneiderman’s point person on the matter. Instead, the False Claims Act continued to apply only to tax fraud that included a false record.
Democrats took control of the State Senate in 2019, and two years later, State Sen. Liz Krueger, chair of the Finance Committee, and Assemblywoman Helene Weinstein, chair of the Ways & Means Committee, pushed through a bill making wealthy individuals and large corporations as liable for “knowingly not filing tax returns” as they are for “knowingly filing false tax returns and statements.” Individuals and corporations with net income or sales of more than $1 million would be liable for knowingly failing to file tax returns costing state or local governments at least $350,000 in lost revenue.
The Big Four accounting firms again each donated $25,000 to Hochul’s campaign within a few days last May. When Hochul vetoed the bill a second time on Jan. 30, 2023, she wrote that it contained an “undefined retroactive lookback period that fails to provide notice to filers and raises due process concerns.”
In their one-house budget plans released last week, both the State Senate and Assembly continued to apply their proposals retroactively.
The bill has been opposed by the state Society of Certified Public Accountants, the Lawsuit Reform Alliance, and many groups in the business community. In a 2022 opposition memo, the State Business Council argued that neither the federal government nor the majority of states apply their false claims acts to tax laws, meaning New York “is already an outlier.” In her recent veto, Hochul noted the Legislature’s bill went “significantly beyond how the federal government and other states pursue civil tax fraud.”
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