State Tax Frauds

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Several states have enacted reward programs for tax whistleblowers. 
Maryland
has a tax whistleblower tip program modeled on the IRS Whistleblower Program, while
New York, the District of Columbia, and Illinois
allow tax whistleblower lawsuits under their state False Claims Acts. These statutes authorize whistleblowers to file lawsuits on behalf of the state to recover fraudulently unpaid taxes and then share in the government’s recovery. These laws are designed to incentivize whistleblowers to report tax underpayments at the state level.

What kinds of state tax frauds can whistleblowers report?

Under state False Claims Acts, whistleblowers can report a wide variety of tax frauds by corporations and individuals:

  • Failing to report

    state sales taxes
    .

  • Illegal

    tax shelters
    created for the sole purpose of evading taxes. Common examples include fictitious retirement plans, abuse of tax-exempt organizations, and improper stock and deferred compensation agreements.

  • Hiding income using

    offshore tax havens
    and
    shell companies and trusts
    .  

  • Failing to report earnings from

    cryptocurrency
    transactions.

Whistleblowers play an essential role in shutting down these schemes. From the outside looking in, it is often impossible to tell when a company is concealing assets or failing to report income. Insiders play a critical role in identifying otherwise undetectable frauds. Outside tax experts can also become whistleblowers by detecting tax evasion through complex analysis.

Who can blow the whistle on state tax fraud?

Almost anyone with information about a violation of a state’s tax laws can file an FCA case. Even employees in senior roles or with compliance functions are eligible in most cases. But you do not need to be an employee of the company engaging in misconduct to qualify as a whistleblower. For a more detailed overview of the requirements, read our State False Claims Act FAQ page.

How do states help protect whistleblowers?

Generally, state False Claims Acts provide protections from employer retaliation, including firing, demoting, suspending, threatening, harassing, or discriminating against whistleblowers who file a state False Claims Act case. Individuals who are retaliated against for their whistleblowing can often sue for reinstatement, back pay, and other damages. These protections can apply whether or not a whistleblower’s case is ultimately successful, as long as the whistleblower has a reasonable belief that a violation occurred.

These descriptions of  federal tax frauds are general in nature and do not constitute legal advice. Tax frauds are complex and ever-evolving. The attorneys at Whistleblower Partners understand the complicated, constantly changing legal landscape and are happy to discuss any potential matter further.

If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.