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April 3, 2015
Much Ado About Qui Tam for State Taxes
by Deddeh Ansumana Jones

Full Text Published by Tax Analysts®

This article first appeared in the September 1, 2014 edition of StateTax Notes.

In the wake of the Great Recession, impending government shutdowns, and fiscal cliff discussions, state governments have had to find creative ways to generate revenue. Taxes make up the majority of the necessary funding to maintain good governance. Reduction in budget deficits through cuts can be sustained only for so long until fundamental services disappear. In seeking relief, some states began discontinuing the tax bar on qui tam suits.

Despite the appeal, such use in the tax fraud context raises concerns. By itself, the use of informants1 to combat fraud is not a novel idea, but it is a game changer. But there lies the conflict between the states' fight against tax fraud and business taxpayers' fear of oppressive enforcement. As such, there has been much ado about qui tam suits.

In general, qui tam litigation is where a private citizen or relator brings a civil action on behalf of the government under a statute that establishes a penalty for the commission or omission of a specified act.2 The relator is awarded a percentage of the penalty, while the remainder goes to the state.3 The statute creating this cause of action is known as the False Claims Act (FCA).4 Historically, the FCA explicitly prohibits tax fraud claims.5 Hence, enforcement of the tax laws was left exclusively to government agencies.

The IRS, realizing the usefulness of informants as well as the tax bar under the FCA, established its own whistleblower program. The program serves as a bounty system that rewards private citizens for bringing incriminating information on tax evaders. Although several states have enacted their own version of the FCA, many have not expressly allowed qui tam suits on tax matters. However, in 2010 New York became the first state to do so.

This study aims to survey the status of qui tam at the state level and examine the competing arguments. Part I addresses the tax fraud problem and how it is dealt with through public and private enforcement mechanisms. Part II presents the three models for utilizing private citizen participation in prosecuting tax fraud: (1) the IRS bounty system, (2) state FCAs implicitly authorizing qui tam tax suits, and (3) New York's FCA, which explicitly welcomes qui tam suits for tax. Part III discusses the pros and cons of implementing qui tam provisions in tax.

I. Fighting Tax Fraud:
The Public and Private Enforcement Mechanisms

The American tax system depends on voluntary self-assessment. As long as taxpayers file timely and accurate returns and pay taxes owed, the IRS generally does not interfere without cause.6 However, whenever a taxpayer intentionally or unintentionally fails to report and pays less than expected under the law, a tax gap7 is created. This tax gap is the difference between the amount of revenue the government would collect if everyone paid fully what they owed and the amount the government actually collects.8 As a result, state governments lose millions -- if not billions -- to undetected tax fraud.

If a taxpayer fails to report or underpays at the federal level, he is more likely to do so at the state level. According to the Brookings Institution's Tax Policy Center, "nonfiling and underpayment of reported taxes account for less than 20 percent of the gross tax gap; underreporting on timely filed tax returns makes up the bulk of the gap." In fact, individual taxpayers reportedly fail to report about 54 percent of income from sources for which there is no information reporting, such as self-employment income.9

Such misfeasance not only contributes to lost revenue but also deteriorates the level of confidence in the tax system by unfairly increasing the burden on others. Further, tax avoidance reduces the tax base and leads to greater regressivity.10 Unfortunately, this byproduct encourages honest taxpayers to take the risk of noncompliance. This vicious cycle exacerbates the drain on state budgets and eventually diminishes government's effectiveness.

To their detriment, tax evaders misunderstand the meaning of voluntary compliance. As such, legal penalties, including civil and criminal sanctions, can be brought against them and their advisers. These consequences aim to reinforce compliance and are intertwined with audits and other methods of discovering noncompliance. Discovering noncompliance is contingent on the availability of information, yet not all information is accessible. Therefore, public enforcement efforts can be thwarted by savvy tax evaders.

Given the obvious fiscal difficulties of the global markets and the trickledown effect of the Great Recession, states struggle to recoup tax revenue losses. Deficits cause states to either eliminate some services or to operate on limited resources. Tax collection is an essential government function that cannot run efficiently without adequate resources for enforcement.

A. Public Enforcement Mechanisms at a Glance

Traditionally, state and local revenue authorities are responsible for uncovering tax fraud. The IRS, the U.S. Department of Justice's Tax Division, and the U.S. Attorney's Offices are responsible for federal tax enforcement. Unlike the federal government, which has three enforcement agencies, states generally have only two: the state revenue agency's criminal investigations unit and the attorney general's office. Because of state budget cuts and other economic restraints, states are vulnerable to having less manpower to investigate tax fraud than their federal counterparts.

Still, the function of state public enforcement agencies mirrors the federal ones. The U.S. Department of the Treasury has broad authority to "examine any books, papers, records, or other data that may be relevant or material" for the purpose of "ascertaining the correctness of any return . . . or collecting any such liability."11 The examination process encompasses coercive powers, such as summons authority.12 The IRS has been delegated the authority to investigate tax fraud by Treasury.

Like the IRS, state revenue departments have the initial authority to investigate all tax crimes. Typically, state revenue agents conduct audits to ensure that taxpayers comply with tax statutes. An administrative process facilitates whether a civil penalty will apply. Criminal prosecution determines whether prison time or fines will be ordered against the convicted tax evader in cases where the state revenue agency discovers severe fraudulent activity. As such, audits are conducted when the taxpayer engages in questionable activities that could lead to fraudulent reporting. In successful audits, revenue agencies have discretion to authorize civil penalties and refer those cases to the state's attorney general for criminal prosecution.

At the federal level, the IRS has an intricate selection system derived from secret algorithms for conducting audits. Most states do not have such an elaborate system. Naturally, a sophisticated selection system helps increase the probability of catching fraudulent tax activity. Even so, only about 1 percent of returns are selected for examination at the federal level.13

Administratively, the examination powers are at the core of enforcement by permitting states to penetrate a taxpayer's otherwise private life to evaluate threats of improper reporting positions. This power encompasses the ability to examine any financial record. Thus, audits are useful tools in this endeavor, but are limited because of the selection criteria of taxpayers. Yet audits provide information on how certain industries or similarly situated taxpayers satisfy their reporting obligations. In turn, the government can learn from this information to make changes in tax law and policy if it discovers practices that amount to willful tax avoidance.

B. Private Enforcement Mechanisms at a Glance

A low-tech solution in discovering noncompliance is informants. Historically, qui tam actions became popular around the 13th century in England as a means of enabling private parties to gain access to the royal courts. The Latin phrase qui tam is short for "qui tam pro domino rege quam pro se ipso in hac parte sequitur," which translates to "he who pursues this action on our Lord the King's behalf as well as his own."14 A qui tam provision confers standing on third parties, allowing them to sue on the government's behalf. However, because of the opening of royal courts to all legal disputes and the distrust of informers, common law qui tam actions began to disappear in England. But their use in America evolved, especially as the public policing power became less effective.

In the mid- to late 19th century, Congress recognized that people with unique knowledge of corruption could be helpful in detecting fraud.15 So, it enacted the Informer's Act of 1863, otherwise known as the FCA or section 3729. Initially, the FCA served as a response to widespread military procurement fraud during the Civil War.16 The idea behind qui tam suits was to create an army of private attorneys general to augment the limited resources available to root out fraud against the federal government.17

When originally enacted, the act applied to any type of fraud as well as to cases where there is no common law fraud, except where Congress imposes proof of specific intent. The level of intent for an FCA violation is "knowingly."18 There is "no proof of specific intent to defraud" required. A defendant will be liable if there is sufficient evidence that he knowingly submitted a false claim.19 Knowingly is defined as actual knowledge of the false information; acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information.20 Thus, the plaintiff must prove that the defendant actually intended to submit false claims under the FCA.21

The act also covers deliberate ignorance up to reckless disregard of the truth or falsity of information related to claims for government funds.22 Nevertheless, mere negligence and "innocent mistakes" are not sufficient to establish liability under the act.23 Because of this standard of intent, the FCA as an anti-fraud enforcement tool subjects violators to treble damages and penalties.24 A relator could recover 50 percent of the amount that the government collected under federal law. In recent years, this statute has been often used to combat healthcare fraud.

The act has been amended several times. During World War II, recovery was reduced from 50 percent to 10 percent if the government intervened and to no more than 25 percent if it did not.25 Also, the relator had to have independent knowledge of the misconduct that the government did not possess in order to maintain the suit.26 These measures ensured underutilization of qui tam suits. But as of 1986, the Reagan administration pushed for greater privatization of government functions, which led to Congress passing the next wave of FCA amendments.

The 1986 amendments gave relators three significant incentives that encouraged the use of qui tam suits. First, the amendment permitted a relator to file a qui tam action even when the government had prior knowledge of the allegations without automatically disqualifying the relator.27 And even if the government intervenes, the relator still may continue as party to the suit.28 Second, it increased the relator's recovery from 25 percent to 30 percent if the government intervened.29 Third, Congress included protection for the relator from an employer's retaliatory acts, thus making it safer for him to bring qui tam suits.30

The most profound amendment of 1986 to section 3729(e) was the tax bar that deprives courts of jurisdiction based on allegations of tax fraud. Further, in the tax fraud context, the 1986 amended act excluded both traditional false claims: ones that seek payment from the government to which the claimant is not entitled and others that misrepresent the amount an individual must pay the government.31 Generally, those claims give rise to qui tam suits in tax matters and are also known as reverse false claims. Consequently, the tax bar was added to prevent tax deficiency allegations falling within the purview of the reverse false claims provision.32

States have enacted their own versions of the FCA with some qui tam provisions and other types of fraud claims that are prohibited by the federal FCA. A typical qui tam cause of action begins with a defendant who made or used a false statement to avoid or reduce payment owed to the state. Next, the defendant knew or should have known it was false. A proper relator or informer files a suit based on being in possession of direct and independent knowledge of the false statement.

In other words, no publicly available knowledge is allowed unless the relator is the original source. If the defendant is found liable, the relator is entitled to a percentage of the total recovery.33 The government, represented by the attorney general, must then decide whether to intervene in the case. Generally, this is the anatomy of a prima facie qui tam state case; however, the amount of recovery, type of fraud, and relator anti-retaliation protection varies from state to state.

II. Surveying the Three Models of Private Enforcement

The federal FCA is at the cornerstone of private enforcement of public law. Although it has a tax bar on qui tam suits, its 1954 amendment established a rewards program to solicit help from insiders in discovering tax evasion. Civil enforcement of such fraud has been reserved for the whistleblower provisions codified in section 7623 of the Internal Revenue Code,34 which (aside from its opacity) has largely been passive and benign.35 In 2006 Congress aimed to strengthen the incentives of the rewards program. As a result, since 1986 the IRS has collected over $30 billion from the informants' rewards program.36 Currently, there are 30 states that have taken the cue from the federal level and enacted their own version of the FCA.37

A. The IRS Informant Rewards System: Benefits and Limitations

The IRS bounty system is treated like a limited public-private partnership. The IRS Whistleblower Office was established in 2006 to administer the rewards program. It pays money to people who blow the whistle on those who fail to pay taxes. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty, and other amounts it collects.38

The purpose of the bounty system is to elicit information not already in the government's possession. Thus, an informant who seeks to collect under a federal bounty program would profit from providing the government with information it does not already possess. The relator's involvement is limited to the information it can provide the IRS, and he does not participate in the litigation.

There are two rewards programs. Under section 7623(a), the first is a discretionary system for authorizing the payment of rewards to informants.39 In general, the Treasury secretary is authorized to pay such sums to an informant as necessary for detecting underpayment of tax, or detecting and bringing to trial and punishment a person guilty of violating tax law.40 Moreover, informants are rewarded for their efforts in detecting both civil and criminal violations of the tax law.

The second program is under section 7623(b), which was introduced by the Tax Relief and Health Care Act of 2006.41 This whistleblower program creates an alternative reward system for high-value cases, which is intended to provide greater certainty for claimants.42 Such cases involved disputed recoveries exceeding $2 million in value.43

The rewards programs are subject to limitations that may deter potential informants from pursuing the bounty awards. First, the percentage amount the whistleblower may be entitled is reduced because of specific circumstances. A reward is required to be no more than 15 percent of the total recovery if the informant's contribution was less than substantial.44

Determining whether that contribution was substantial depends on whether the government already had access to the information provided by the claimant during a judicial or administrative hearing. The reward can also be reduced if the government can prove that the informant's conduct contributed to underpayment in some way. The IRS may also deny the reward entirely if the informant is convicted on co-conspiracy. Yet, under whichever scenario, the whistleblower claimant can appeal within 30 days to the Tax Court. A discretionary reward cannot be appealed.

B. State FCA Statutory Models and Qui Tam Provisions

The tenor of enforcement is different at the state level. From the 30 jurisdictions that have a version of the FCA, each falls into one of four categories. The first group has explicit tax bars of qui tam actions, including California,45 the District of Columbia,46 Hawaii,47 Massachusetts,48 North Carolina,49 Tennessee,50 and Virginia.51 Of other jurisdictions, the second group includes Delaware,52 Florida,53 Nevada,54 New Hampshire,55 Washington,56 Wisconsin,57 and Chicago,58 which have FCA statutes that implicitly permit state tax FCA claims involving any type of tax. Generally, these statutes were determined to allow qui tam actions in tax matters based on judicial interpretation. The third group includes Illinois,59 Indiana,60 and Rhode Island,61 which bar only income tax FCA actions; any other type of state or local tax is fair game. The remaining jurisdictions are limited to Medicaid-related claims and other types of fraud.

Although each jurisdiction's FCA varies, the penalties for violation are severe, and the potential reward to a whistleblower is significant. Persons found to have violated a state FCA may be found liable for three times the amount of unpaid tax, interest, and penalties, plus per-occurrence civil penalties (up to $11,000 per false claim in Illinois) and costs.62 Up to 30 percent of the proceeds of any judgment or settlement may be awarded to the whistleblower, together with its costs, expenses, and reasonable attorneys' fees.63

There has been an upsurge of such litigation. A Multistate Tax Commission subcommittee on income and franchise tax uniformity recently began drafting a state false claims act model provision.64 As more states struggle with budget issues, qui tam suits in tax will slowly become a force to be reckoned with. However, the absence of explicit language clearly leaves taxpayers vulnerable to suits brought by opportunistic relators.65

C. New York's FCA

New York's FCA is a pioneer in qui tam law because it is the first to expressly allow qui tam suits for tax. It aggressively targets tax fraud by including treble damages against the convicted taxpayer and has a 10-year statute of limitations provision.66 Under the statute, a false tax payment requires the taxpayer to have acted "either 'in deliberate ignorance of the truth or falsity of the information'" or "in reckless disregard of the truth or falsity of the information."67

Moreover, taxpayers with net income or sales that exceed $1 million for the tax year, or taxpayers whose underreporting deprives the state more than $350,000, are subject to the statute.68 If this threshold is met, a convicted taxpayer must pay treble damages that are three times the amount of tax of the underpayment.69 Also, the taxpayer must pay $6,000 to $12,000 for each false act.70 The statute expands the scope of relators by protecting public and private agencies and, most strikingly, it grants immunity to relators who steal confidential or otherwise sensitive documents from their workplace to help prove their claims.

The New York FCA is very similar to the federal FCA; however, it is entirely pro-government in that it does not allow for reverse false claims against the government. It also grants New York's attorney general discretion to intervene or even dismiss the qui tam action.71 And a relator is given an opportunity to be heard in court to challenge the dismissal.72 These features and the limitations provide checks and balances to increase the legislation's effectiveness. But there are concerns regarding the statute's implementation.

III. The Pros and Cons of Qui Tam
for State Tax

The primary reason to allow qui tam suits in tax matters is to increase the likelihood that taxpayers will comply with tax laws. More eyes and ears on the inside diminish the chances a taxpayer might indulge in tax fraud. To continue voluntary compliance, advocates believe that qui tam tax suits are an alternative method of keeping everyone honest. But opponents see it as one step closer to having Big Brother surrogate spies as employees -- which they say violates their confidentiality rights.

At the crux of debate between advocates and opponents is whether private citizens who have a self-interest in gaining a payday should help regulate an essential government function that is inherently riddled with uncertainty. Tax law is stochastic in many ways; often it becomes a random variable, with a probability that taxpayer A will pay more than taxpayer B under changing circumstances or factors specified in the tax code.73

Added to this difficulty, assigning probability to the different outcomes allows qui tam tax actions to give regulators and courts the means to express preferences for form, substance, or any point in between. Such discretion in making accurate assessments of reporting positions and transactions can become a task of partially informed guesswork.74 This is one reason opponents disagree with permitting private persons enforcing the law.75

Aside from states' revenue needs, a balancing of interests must be evaluated to decide whether qui tam suits for tax are an appropriate enforcement model for tax recovery.

A. The Pros for Qui Tam State Tax Suits

The most persuasive reason for using a qui tam suit in tax is that it recovers lost revenue for the government by encouraging private citizens to report fraud.76 Since the government has been ineffective at fighting tax fraud, qui tam provisions extend its reach by using informants to increase enforcement of tax laws. Private enforcement of public law is particularly appropriate when state agencies, because of asymmetric information and tax evaders' active concealment, are unable to enforce and prosecute the law effectively.77

Because taxpayers and their advisers possess the information that tax regulators seek, keeping as much of it from them as possible is readily achievable when those taxpayers pay great sums to advisers most skilled at concealment.78 It leads to a cat-and-mouse game for which qui tam provisions could level the playing field.79 Rewarding private persons who come forward encourages them to do the right thing, which in turn serves the public's interest.

Given state and local governments' budget crises, resources necessary to enforce tax laws are insufficient. The use of qui tam suits in tax has two benefits in solving this problem: reducing the costs of acquiring information to uncover tax fraud and increasing efficiency of potential enforcement by focusing on large-scale tax recovery.

Under its bounty system, the IRS has to expend resources to investigate the whistleblower's claims and information provided. In a qui tam suit, the state's tax agency and attorney general have discretion to join the suit while the relator builds its case for the government. This arrangement places the onus on the relator and saves the government costs and resources. As a result, the government's limited resources restriction does not bind private plaintiffs.80

States are sensitive to budget restraints given that portions of their financial resources are derived from federal funds. As a federal entity, the IRS has a much larger budget, hence a bounty system may be more suitable, especially given its access to the resources of the DOJ and the U.S. Office of the Attorney General. However, states typically have limited access to their attorney general's resources -- while the IRS has relatively more.

B. The Cons for Qui Tam State Tax Suits

Opponents contend that qui tam tax suits are inappropriate because of the uncertainty in tax and the negative impact on businesses. Moreover, they argue that such suits are motivated by self-interest and greed -- which leads to costly, frivolous lawsuits. Further, critics contend that the institutional competence of tax law should be left to the purview of the administrative agencies responsible for enforcement.

Accordingly, there are four primary reasons that the opposition cites against the use of qui tam tax suits:

  • institutional competence and the complexity of tax law;
  • distrust of relators and the proliferation of frivolous lawsuits;
  • the breach of privacy and confidentiality of business activities; and
  • unnecessary business deterrence.

Essentially, critics believe that qui tam actions lead to the filing of additional, opportunistic lawsuits brought by relators exploiting legal uncertainties.

First, the concept of institutional competence deals with limiting the authority to the administrative body, which has the enforcement power because private enforcement models lack the expertise to evaluate such claims. This notion is exemplified by the tax bar under the federal FCA. Section 7401 of the IRC grants the IRS sole enforcement power over tax matters. More specifically, it states that "[n]o civil action for the collection or recovery of taxes . . . shall be commenced unless the Secretary authorizes or sanctions the proceedings and the Attorney General or his delegate directs that the action be commenced."81

Consequently, courts have found consistently that this provision of the tax code would be violated if claims seeking the "collection or recovery of taxes" could be brought as a qui tam action under the FCA.82 Since a qui tam plaintiff may commence the action without the secretary's or the attorney general's approval and can proceed with the action even if the secretary and the attorney general disapproved of it and refused to intervene, it would diminish the IRS's enforcement power if courts allowed these actions.

As such, section 7401 embodies the interpretation that institutional competence must remain in hands of the IRS. It concludes that Congress gave the IRS, in conjunction with the DOJ, exclusive authority to decide when to pursue an action for alleged tax fraud, presumably because Congress decided that the IRS and DOJ are in the best position to make this determination. This conclusion in turn rests on the notion of tax law having the special nature that lends itself to being treated differently from other fraud. The IRS and DOJ are given deference based on a desire to promote uniformity and consistency in the way tax provisions are interpreted and tax laws are enforced. These priorities are particularly important given that the IRS does not have unlimited resources to prosecute every tax offense and must identify especially egregious violations.

Similarly, opponents argue that state revenue departments are solely responsible for assessing taxpayers they believe have not complied with their state's tax laws. And they contend that state revenue agencies are capable of executing their administrative processes and developing cases for litigation that would resolve any significant tax policy questions.

The administrative process provides a vehicle through which the state revenue department may work with the taxpayer to refine the issue and, if necessary, litigate the factual and legal questions. As a result, private citizens should not be allowed to use tax litigation that in turn molds and defines a state's tax laws without involvement or consideration by its department of revenue. Critics are also particularly disturbed by qui tam actions based on already audited matters. They believe that it is counterintuitive at best, and that individuals are allowed to litigate civil issues already subject to an investigation by the agency primarily responsible for enforcing the pertinent law.

The baseline of qui tam opponents' argument is that determining whether sales tax applies to a particular item, service, or transaction is not easy, and vendors expend a great deal of resources trying to interpret and comply with state tax regulations. They contend that agencies and taxpayers should be allowed to resolve issues administratively without the threat of third-party litigation.

Pundits further argue that tax enforcement requires specialized knowledge because tax law is too complicated for a layperson. Given the IRC's intricacies, the argument goes, it would be impossible in many cases for private individuals to know when a tax law violation has occurred, leading to a potentially high number of frivolous lawsuits. This problem is compounded because taxpayers are frequently unaware that they are potentially violating the tax laws. In those circumstances, qui tam suits could lead to costly lawsuits against the unwary and create opportunities for unfettered litigation, critics argue.

Proliferation of frivolous suits arising from coercive claims (that is, harassment) brings another set of problems for allowing qui tam suits for tax. Because qui tam plaintiffs stand to reap substantial monetary benefits under the state FCAs, there is an inherent incentive for such plaintiffs to pursue weak or even meritless claims in unsettled areas of tax law.83 Thus, there would be nothing stopping qui tam plaintiffs from bringing actions on open questions of law, for instance, where regulators, courts, or even Congress had not provided sufficient guidance.84 Critics argue that it provides plaintiffs' bar to generate lawsuits based on ambiguities, conceivably with or without specific insider or informant information.85

There are also issues with qui tam tax suits regarding privacy and breach of confidentiality. The U.S. tax system rests largely on the taxpayer's voluntary compliance,86 and full disclosure can only be expected if taxpayers can trust the government to keep the information private.87 This understanding is codified in numerous tax code provisions, most notably in section 6103, which disallows disclosure of a person's tax information to anyone other than specified persons or agencies.88

Further, opponents argue that qui tam provisions encourage careless disclosure of protected tax information to persons not authorized to receive such disclosure.89 Thus, the argument follows that if tax matters are kept within the public enforcement model, privacy and confidentiality concerns can be regulated more succinctly.

Finally, as a public policy matter, critics do not like qui tam tax suits because they can lead to business deterrence. Companies need assurances that they can reasonably calculate or anticipate foreseeable risks to their interests. The fear of an improper relator obtaining a payday through a legal form of blackmail creates a class of undercover bounty hunters from which businesses cannot foreseeably protect themselves against frivolous tax fraud claims. Opponents believe that qui tam tax suits threaten the progress states have made in working with the business community to improve tax administration. Critics view qui tam as sending a message that businesses will now have to be on guard for tax fraud that they may not know exists. Thus, it renders reliance on state revenue agency guidance a precarious endeavor.

IV. Conclusion

For the past quarter-century, the FCA has been the government's primary weapon in combating fraud. State FCAs modeled after the federal law are a similar form of public-private partnerships between private citizens and the government to expand the reach of states' enforcement power. However, at the state level, the jury is still out about whether qui tam provisions are suitable or effective in all tax cases. Inevitably, qui tam provisions also heighten the prospect of more whistleblower actions, which in turn increase risks for taxpayers.

As state budget deficits continue, tax increases and spending reductions can do only so much to solve the problem. Empowering private citizens to help enforce state tax laws deters tax evasion. But for business taxpayers, it places yet another burden that they must guard against -- if not making them downright wary of all gray areas of state tax law.


1 "Informant" refers to two types of informants: whistleblowers and relators. Whistleblowers are private persons who reap the rewards of bounty programs for providing incriminating information. Relators are private persons who have the power to sue in a civil action on behalf of the government and reap the rewards of a successful case. Whistleblowing and qui tam are often used interchangeably, but they are distinct. See, e.g., Dennis J. Ventry Jr., "Whistleblowers and Qui Tam for Tax," 61 Tax Law. 357, 372 (2008) (distinguishing between whistleblowing and qui tam actions and arguing that the whistleblowing program for tax should be expanded to allow qui tam suits); see also Franziska Hertel, Note, "Qui Tam for Tax?: Lessons from the States," 113 Colum. L. Rev. 1897, 1902 n. 27 (2013).

2 See False Claims Act, 31 U.S.C. section 3730(b)(1) (2006) ("A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government").

3 See 31 U.S.C. section 3730(d) (2006).

4 See 31 U.S.C. section 3729-3733 (2006).

5 See 31 U.S.C. section 3729(d) (2006) (the FCA "does not apply to claims, records, or statements made under the Internal Revenue Code of 1986").

6 See Treas. reg. section 601.103(a) (2006) ("The Federal tax system is basically one of self-assessment. In general each taxpayer or person required to collect and pay over the tax is required to file a prescribed form of return that shows the facts upon which tax liability may be determined and assessed").

7 See IRS, U.S. Department of the Treasury, "Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance" 6 (2007).

8 Id.

9 Id.

10 Regressivity is when the wealthier taxpayers in a community generally pay a smaller share of their income in state and local taxes than middle-income taxpayers and those living in poverty. The definition of "regressive tax" is a "tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder."

11 IRC section 7602(a).

12 See IRC section 7602(a)(2).

13 Ray Martin, "The IRS Scandal May Reduce Audit Risk," CBS Money Watch, May 23, 2013.

14 Rockwell Int'l Corp. v. United States, 549 U.S. 457, 463, n. 2 (2007).

15 Christopher T. Lutz et al., "A Recipe for Bad Tax Policy: False Claims Acts and State Taxation," 22 J. Multistate Tax'n and Incentives 14, 48 (Jan. 2013).

16 See J. Randy Beck, "The False Claims Act and the English Eradication of Qui Tam Legislation," 78 N.C. L. Rev. 539, 555 (2000).

17 David Koenigsberg, "New York Unleashes New Tax Enforcement Tool," Int's Tax Rev., July/Aug. 2012.

18 See 31 U.S.C. section 3729(b).

19 See id.

20 Id.

21 See U.S. v. Oakwood Downriver Med. Ctr., 687 F. Supp. 302, 306 (E.D. Mich. 1988) ("It is clear that . . . liability [under FCA] has always ensued when one submits a false claim to the government regardless if it was actually intended to defraud the government").

22 See U.S. ex rel. Hagood v. Sonoma Cnty Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991) (the statutory definition of "knowingly" requires at least "deliberate ignorance" or "reckless disregard").

23 See id. at 1420.

24 31 U.S.C. section 3729(a)(1) ("Any person . . . is liable to the [U.S.] Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages that the Government sustains because of the act of that person").

25 See id. at John T. Boese, Civil False Claims and Qui Tam Actions, section 1.04[G], 1-26 (2004-2).

26 See 31 U.S.C. section 3730(e)(4)(B) ("'Original source' means an individual . . . who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section").

27 See 31 U.S.C. section 3730(e)(4) (2006) (barring qui tam suits in such situations unless relator has "direct and independent knowledge of the information on which the allegations are based").

28 See id. at section 3730(c)(1).

29 See Kary Klismet, "Quo Vadis, 'Qui Tam'? The Future of Private False Claims Act Suits Against States After Vermont Agency of Natural Resources v. United States ex rel. Stevens," 87 Iowa L. Rev. 283, 291 (2001).

30 See id. at 291-292, n. 48 (noting that employee who is discharged or otherwise harmed because of lawful action taken under qui tam provision "shall be entitled to all relief necessary to make the employee whole") (quoting 31 U.S.C. section 3730(h)).

31 See 31 U.S.C. section 3729(a) (2006) (listing claims against government prohibited by the FCA); see also Int'l Game Tech. Inc. v. Second Judicial Dist. Court, 127 P.3d 1088, 1102 (Nev. 2006) ("FCA liability was created for attempts to avoid paying sums owed to the government").

32 Int'l Game Tech. Inc., 127 P.3d at 1102.

33 See section 3730(d)(1); see also Aaron R. Petty, "How Qui Tam Actions Could Fight Public Corruption," 39 U. Mich. J.L. Reform 851, 863 (2006) ("If the lawsuit succeeded, the private party, known as a 'relator' or 'informer,' would be entitled to a share of the damages or civil penalties paid by the defendant").

34 See IRC section 7623(a).

35 Robert Lu, "False Claims Act For Tax Fraud: Will The Feds Follow The States?", Dec. 9, 2013.

36 U.S. Department of Justice, "Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011," Dec. 19, 2011.

37 Lori L. Pines and Vanessa W. Chandis, "Navigating the Amended New York False Claims Act; Statute Allows State to Recover Millions of Dollars," 248 N.Y. L.J. S6 (Aug. 20, 2012).

38 See IRC section 7623(b)(1).

39 Edward A. Morse, "Whistleblowers and Tax Enforcement: Using Inside Information to Close the 'Tax Gap,'" 24 Akron Tax J. 1, 13 (2009).

40 See id.; IRC section 7623(a).

41 See IRC section 7623(b).

42 Supra note 38.

43 See IRC section 7623(b)(5)(B).

44 See IRC section 7623(b)(1).

45 Cal. Gov't Code, sections 12650-12656 (West).

46 D.C. Code Ann. sections 2-381.01-.09 (West).

47 Haw. Rev. Stat. Ann. sections 661-21 to -31 (West).

48 Mass. Ann. Laws ch. 12, sections 5A-O (West).

49 N.C. Gen. Stat. Ann. sections 1-605-18 (West).

50 Tenn. Code Ann. sections 4-18-101 to -185 (West).

51 Va. Code Ann. sections 8.01-216-1 to -19 (West).

52 Del. Code Ann. tit. 6, sections 1201-1211 (West).

53 Fla. Stat. Ann. sections 68.081-.092 (West).

54 Nev. Rev. Stat. Ann. sections 357.010-.250 (West).

55 N.H. Rev. Stat. Ann. sections 167:61-b to -e (West).

56 Wash. Rev. Code Ann. sections 74.66.005-120 (West).

57 Wisconsin False Claims for Medical Assistance Law, Wisc. Stat. Ann. section 20.931 (West).

58 Chi., Ill., Municipal Code of Chi. ch. 1-22 (West).

59 740 Ill. Comp. Stat. Ann. 175/1 to /8 (West).

60 Ind. Code Ann. sections 5-11-5.1-.18 (West).

61 R.I. Gen. Laws sections 9-1.1-1 to -9 (West).

62 Mary Kay McCalla Martire and Lauren A. Ferrante, "A Decade of Lessons Learned from State Tax False Claims Act Cases," Nat'l L. Rev., Dec. 6, 2013.

63 Id.

64 Id.

65 Lutz et al., supra note 15, at 20.

66 Billy Hamilton, "New York's Qui Tam Law: Jackpot Justice or Creative Tax Tool -- or Both?" State Tax Notes, Jan. 10, 2011, p. 109.

67 Jack Trachtenberg, Jeffrey A. Friedman, and Eric S. Tresh, "Applying False Claims Acts in State Taxation," State Tax Notes, May 7, 2012, p. 373.

68 Supra note 65.

69 Lutz et al., supra note 15, at 20.

70 N.Y. State Finance Law section 189(3).

71 Timothy Noonan and William Comiskey, "Calling All Tax Whistleblowers -- New York Wants You!" State Tax Notes, Jan. 31, 2011, p. 349.

72 Id.

73 Ventry, supra note 1, at 371.

74 Id.

75 Id.

76 Christina Orsini Broderick, Note, "Qui Tam and the Public Interest: An Empirical Analysis," 107 Colum. L. Rev. 949, 960 (2007).

77 Ventry, supra note 1, at 371.

78 See id.

79 Id.

80 Hertel, supra note 1, at 1922.

81 IRC section 7401.

82 See e.g., United States ex rel. U.S.-Namibia (Sw. Africa) Trade & Cultural Council Inc. v. Africa Fund, 588 F. Supp. 1350, 1351 (S.D.N.Y. 1984) ("The qui tam statute does not authorize a private party to override section 7401 to recover penalties or damages allegedly sustained by the government by virtue of false income tax statements."); United States ex rel. Roberts v. Western Pac. R. Co., 190 F.2d 243, 247 (9th Cir. 1951) (regarding tax frauds, "the legislative purpose was not to permit a qui tam action . . . under the circumstances here present, to be maintained by an individual, at least without express consent of the Commissioner of Internal Revenue").

83 See, e.g., In re Natural Gas Royalties Qui Tam Litig. (CO2 Appeals), 566 F.3d 956, 960 (10th Cir. 2009) (stating that the federal equivalent of the FCA encourages qui tam plaintiffs to pursue a "meritless claim that the government has chosen not to pursue, perhaps to coerce a settlement through the threat of expensive litigation").

84 Ventry, supra note 1, at 374.

85 Id.

86 Hertel, supra note 1, at 1919.

87 Id.

88 Id. at 1919-1920.

89 Id. at 1920.

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