Earlier, we reported on recent amendments to the New York State False Claims Act. Our report focused on the portions of the amendments to the New York FCA that tracked amendments to the federal False Claims Act. Recently, we spoke with Greg Krakower, special counsel to the majority at the New York State Senate, about another significant change included in the amendments: the New York FCA is now the first FCA in the nation to cover tax fraud.

Before the amendments, the New York FCA, like the federal FCA, expressly excluded from liability claims, statements, and records made under the tax law. The recent federal amendments made no changes to these provisions of the federal FCA. However, the New York amendments eliminated the express exclusion from the New York FCA. Now, false claims and statements made in relation to tax returns will give rise to liability under the New York FCA, provided that the person or entity who is the target of the action has net income or sales of at least $1 million, and the damages in question are at least $350,000.

Krakower – who helped draft the amendments – informed us that: “New York is the one jurisdiction in the country that allows individuals to bring actions for tax fraud.” Courts construing the exclusion of tax claims in the federal law have concluded that the bar was specifically designed so that the IRS could enforce the Internal Revenue Code as it sees fit. According to Krakower, the New York tax authorities are not so territorial. Krakower anticipates that qui tam relators for tax fraud claims would include accountants, bookkeepers, employees of banks, accounting firms, and other businesses that handle tax matters.

Krakower does not see the new provisions to the New York FCA as a change to the state tax law. For instance, there are no special carve-outs for tax preparers or executors who file tax returns on behalf of estates. According to Krakower, such individuals would not risk liability under the newly revised New York FCA unless they themselves knowingly filed a false claim or made a false statement to the government. Krakower also points out that, since liability under the New York FCA requires a false statement or false claim, the amendments do not create FCA liability simply for failing to pay taxes or file tax returns.