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False tax claims fraught with danger

Last month, a bill, The False Claims Amendment Act of 2017, B22-0166, was introduced by District of Columbia Council member Mary Cheh that would allow tax-related false claims against large taxpayers. First enacted during the Civil War, the False Claims Act was overhauled in 1986 and is widely seen as effective in combating fraud against the federal government.

The False Claims Act allows private citizens to sue those that commit fraud against government programs. The Act provides for up to treble damages and also provides awards of 15 to 30 percent of recoveries for those bringing cases.

The District’s bill would amend the false claims statute to authorize tax-related false claims actions against persons that “reported net income, sales, or revenue totaling $1 million or more in a tax filing to which that claim, record, or statement pertained, and the damages pleaded in the action total $350,000 or more.” Earlier this year, a similar bill (SB 65) was introduced in Michigan that would enact a new false claims act expressly applicable to tax, with dollar thresholds identical to those in the DC bill. 

Takeaway

The U.S. Justice Department recovered over $4.7 billion from False Claims Act cases in fiscal year 2016. By amending the False Claims Act within a jurisdiction to include tax-related offenses, the number of cases could climb significantly. The proposed expansion of false claims enforcement creates uncertainty for taxpayers and a greater need to make sure you are accurately reporting your tax position. 

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Judy Vorndran welcomes your State and Local tax questions at 720.227.0093 or jvorndran@taxops.com.
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