Tax whistleblower could receive rewards and protection from job retaliation under an amendment to the District of Columbia False Claims Act that the District Council passed this month.
The tax whistleblower bill would amend the DC False Claims Act, a nine-year-old whistleblower law, and provide an important enforcement tool to help ensure that all taxpayers pay DC the taxes they owe.
To qualify for a reward, whistleblowers would have to report tax fraud that exceeds $350,000 owed to the District by companies or any taxpayer whose taxable income, District sales or District revenue exceeds $1 million.
As in all False Claims Act cases, tax whistleblowers would have protection from job retaliation and be eligible for rewards of 15% to 30% of the amount the District collects as a result of the whistleblowers’ information and assistance in their cases.
Despite two potential hurdles that remain in the legislative process, the tax whistleblower bill is expected to become law.
DC Mayor Muriel Bowser could veto the bill, but her veto is likely to get overridden since the bill passed by a 12-1 council vote.
In addition, Congress can block any DC bills from going into effect by passing a joint resolution, but such action is highly unlikely.
At a press conference before the vote, Bowser indicated her possible opposition to the tax whistleblower bill, noting that businesses “are dealing with a lot of uncertainty,” and she wants to be sure that any new legislation “isn’t introducing more regulations or uncertainty in their operations at this time.”
The DC tax whistleblower bill does not involve any new regulations for business, and the only uncertainty it introduces is whether businesses evading their taxes will be caught. The tax whistleblower bill just makes it more likely that they would, which is good for the District and all taxpayers who share the burden of funding local services.
In fact, the tax whistleblower bill is a way to leverage government resources by creating a public-private partnership. Whistleblowers and their counsel provide detailed information and evidence of tax evasion and expand resources for the District’s tax enforcement team.
This approach to expanding enforcement to serve DC taxpayers fits with the Mayor’s desire, expressed at her press conference, to “get more out of the government that we have.”
The DC False Claims Act and the new DC tax whistleblower legislation
The District’s experience with False Claims Act cases attests to how successful a whistleblower case can be.
The DC False Claims Act, modeled after the federal False Claims Act and dozens of similar state laws, allows whistleblowers to file “qui tam” lawsuits on behalf of the District against those who are cheating the government in their government contracts.
The District’s attorneys would maintain control over whistleblower suits. The DC attorney general would investigate the allegations and decides whether to join the lawsuit. If the attorney general declines to intervene, whistleblowers may proceed on their own to recover funds for the government, but the attorney general may seek dismissal of the case.
Phillips & Cohen represented a whistleblower in a DC False Claims Act case against Chartwells, a DC Public Schools food contractor, that alleged the school system paid millions more for the school meal programs than it should have paid and that the school meal programs suffered many problems, including food spoilage and insufficient number of meals.
The DC Attorney General’s office investigated the allegations and decided to join the case, which settled in 2015 for $19.4 million. It was the largest recovery under the DC False Claims Act to date. That money would not have been recovered for District taxpayers without the efforts of Phillips & Cohen’s whistleblower client.
Expanding the DC False Claims Act to include the recovery of evaded taxes, as has been done in New York and several other states, makes good fiscal sense and offers the District opportunities to identify hidden tax evasion schemes.
The tax whistleblower legislation has several protections for taxpayers and the District. The high thresholds established by the bill for whistleblower cases would mean that only significant ones would be pursued, not cases against the average DC taxpayer.
Tax records would remain protected as they currently are under federal law, so no one besides authorized officials would have access to them. A case could be brought under the DC False Claims Act only if a taxpayer knowingly violates or recklessly disregards tax requirements, protecting those who act reasonably and in good faith.
In addition, the DC Attorney General would be required to consult with the District’s Chief Financial Officer before deciding whether to join a tax whistleblower case to determine whether it is in the District’s interest to pursue the matter. If the District already is investigating or auditing that taxpayer on the same allegations or transactions, the whistleblower case would be precluded.
Opposition to the DC tax whistleblower bill
Opponents of the legislation, including the DC Chamber of Commerce, raised specious arguments against the legislation, such as claims that the bill would “increase frivolous claims and burgeoning caseloads that would also overburden the court system,” as the Chamber put it in a 2018 letter to Council Chairman Phil Mendelson.
These are the same attacks that were used in efforts to stop the adoption of the federal False Claims Act and similar state laws. There is no evidence of any meaningful increase in frivolous lawsuits nor that whistleblower cases “overburden” the court system.
Instead, the federal False Claims Act is widely considered to be the United States’ most effective tool for fraud enforcement. Whistleblowers initiate the majority of successful cases.
Verizon and AT&T co-signed the DC Chamber letter, which, interestingly, is dated just a day before the NY attorney general announced that another telecom, Sprint, had agreed to pay $330 million to the state to settle a tax whistleblower case brought under the tax provisions of the New York False Claims Act.
New York has had great success with the tax provisions of its False Claims Act, collecting more than $467 million from 18 settlements of tax whistleblower cases. The District is likely to see similar benefits from its legislation.
ABOUT PHILLIPS & COHEN LLP
Phillips & Cohen is the most successful law firm representing whistleblowers, with recoveries from our cases totaling over $12.3 billion. We have been recognized for our work by numerous national awards. The New York Times, The Wall Street Journal, the Financial Times and other news media have featured many stories about our cases and our attorneys. Phillips & Cohen’s roster includes former federal prosecutors, the first head of the SEC Office of the Whistleblower, a former deputy administrator of the Centers for Medicare and Medicaid Services, the author of a leading treatise on the False Claims Act and attorneys with decades of experience representing whistleblowers.