New York Attorney General Eric Schneiderman announced on March 14, 2014, the successful conclusion of a tax whistleblower case brought under the historic 2010 amendments to the State False Claims Act. Those amendments authorized whistleblowers to earn huge rewards by bringing cases on behalf of the state against those who have engaged in significant violations of the tax law. We have written previously about the 2010 amendments and other New York tax whistleblower developments including the attorney general’s major whistleblower suit against Sprint/Nextel.
In this newly announced case, the attorney general’s press release disclosed that a “tax services provider” became aware of the tax violations and blew the whistle on a medical imaging company, Lantheus Medical Imaging, and its parent company, Bristol-Myers Squibb, for failing to pay more than $2.2 million in New York State franchise taxes, New York City corporation taxes, and MTA surcharges for the period 2002 to 2006.
Because the False Claims Act empowers the state to recover treble damages, the suit was settled with the payment of $6.2 million (which appears to be only a minor compromise by the state), of which $1,137,814 was earmarked for the whistleblower.
The settlement is good news for tax whistleblowers. It confirms, again, that Attorney General Schneiderman is committed to aggressively pursuing tax cases under the New York’s False Claims Act. It also confirms a truism that many whistleblower attorneys know — tax professionals can make good whistleblowers as long as the information they disclose is not protected by privilege. As some members of the attorney general’s staff have been heard to say, tax professionals with inside information of tax violations can opt to be either a whistleblower and potentially earn an award or a prospective target as the attorney general examines whether the professional knowingly conspired with the taxpayer to commit the tax violation. Given the whistleblower award in this case, no one should be surprised if more tax professionals make the choice to become whistleblowers.
But the major news to be gleaned from this press release is the amazing speed with which the attorney general’s office investigated and resolved this case. The whistleblower filed the case in May 2012, and in less than two years, the attorney general’s Taxpayer Protection Bureau and the Tax Department investigated the allegations and negotiated a settlement that certainly appears to have been strongly favorable to the state. This could be a testament to the quality of proof produced by the whistleblower or the quality of the proof adduced by the attorney general’s staff or, more likely, both.
Compare this nimble result with the delays and other problems that have confounded whistleblowers who have come forward under the IRS tax whistleblower program. Taxpayers in the federal program are left twisting in the dark for many years while their allegations are investigated (or not) by the IRS. Although hundreds of whistleblower claims have been filed in the years since the IRS whistleblower law was strengthened in 2006, only a handful have been brought to fruition. No wonder there is such widespread dissatisfaction with the IRS program.
Given the impressive dispatch exhibited by Attorney General Schneiderman under the New York statute, no one should be surprised if more whistleblowers turn to the New York program to jump-start complaints involving both federal and New York State tax issues that may be languishing with in the IRS program. While there are some disadvantages in pursuing a case under the New York statute, there are many advantages, including a 10-year statute of limitations. Add to those advantages the promise of aggressive enforcement by a committed attorney general, and potential New York tax whistleblowers who have been on the fence will have lots to think about.