On December 1, 2020, the Council of the District of Columbia passed the False Claims Amendment Act of 2020, B23-0035 (the “Amendment”).[1] The Amendment extends the reach of DC’s existing False Claims Act to also cover tax fraud—a type of fraud that was previously excluded. This change means that whistleblowers will become able bring a qui tam suit against tax fraudsters, which they had not been able to do previously. Furthermore, the Amendment also removes the cap on awards for whistleblowers who expose tax fraud. When their information leads to a successful enforcement action, the maximum award will no longer be capped at 10%, but can instead be as much as 30% of the proceeds collected. These legislative changes, provided they will be finalized, are excellent news for DC’s taxpayers. A robust whistleblower program has proven to be a highly effective way of combating the scourge of tax dodging.
The Amendment Brings Tax Fraud Within the Scope of DC’s False Claims Act
Under the Amendment, tax fraud by individuals or corporations that have annual taxable income, sales, or revenue of $1 million or more now fall within the scope of DC’s false claims act, if the damage that the District has suffered from the fraud is at least $350,000.[2] When the Amendment becomes law, tax fraud that falls within these parameters can be prosecuted by DC’s Attorney General and by qui tam whistleblowers.
Tax fraud had previously been explicitly excluded from the statute.[3] As the DC Council’s Committee of the Whole notes in its report on the Amendment, by eliminating the existing carve out for tax fraud, the Amendment gives the District “a new tool for enforcement” that will “better enable[] the District to crack down on tax fraudsters, generate revenue, and increase enforcement resources in a revenue-neutral manner.”[4] This is no mere idle hope: By extending its false claims act to cover tax fraud, DC brings its false claims act in line with those of seven states, including New York.[5] DC’s bill is explicitly modeled on New York’s statute, which has proven to be a resounding success for that state’s taxpayers, and has netted New York nearly half a billion dollars in state taxes that would not have been collected, without the state’s false claims act provision.[6]
Crucially, the Amendment will apply retroactively—meaning that, in light of the 10-year statute of limitations that applies to False Claims Act violations under DC law, any tax fraud that has been committed in the past decade can potentially fall within the amended Act’s purview.
The Amendment Also Provides for Increased Awards for Tax Whistleblowers
The Amendment not only expands the scope of DC’s False Claims Act to include tax fraud, but also provides for enhanced rewards for the brave individuals who blow the whistle on tax fraud. Such rewards create additional incentives to report such fraud to the government.[7]
DC’s existing anti-tax fraud statute provides for rewards to individuals who provide the government with information that leads to a successful enforcement action, but it caps awards at 10%.[8] By contrast, DC’s False Claims Act generally provides for whistleblower rewards ranging from 15% to 30% of the money recovered from wrongdoers.[9] By bringing the maximum award for reporting tax fraud in line with the awards available for reporting other kinds of fraud, the Amendment recognizes the importance of whistleblowers to its efforts to combat tax fraudsters.
The Amendment Could Become Law as Soon as January 2021
The Amendment was adopted by the DC Council with a vote of 12 in favor and 1 against on December 1, 2020. The 12-to-1 vote represents a supermajority, meaning that the Amendment is veto-proof. The Amendment will now be sent on to Mayor Muriel Bowser for consideration. If she does not veto the Amendment, or if her veto is overridden, it will be sent to Congress—which has the power to block the District’s legislation pursuant to the Home Rule Act of 1973—for a 30-day review period.[10] If Congress does not block the Amendment, it will take effect upon expiration of the 30-day Congressional review period. This means that the Amendment can become the law in the District as early as January 2021—and the District’s taxpayers may well start reaping its benefits shortly thereafter.
If you believe that you may have knowledge of tax fraud by individuals or corporations in the District of Columbia or New York, you may want to contact a whistleblower lawyer at our firm.
Footnotes
[1] See S. P. Kranz, et al., DC Council Expands False Claims Act to Tax Claims, Nat’l L. Rev. (Dec. 2, 2020), https://www.natlawreview.com/article/dc-council-expands-false-claims-act-to-tax-claims.[2] See Amendment to Bill 23-35, False Claims Act of 2020, available online at https://lims.dccouncil.us/downloads/LIMS/41625/Other/B23-0035-Amendment_to_Bill_23-35.pdf. Note that this limitation means that only a small fraction of individual tax payers in the District will fall within the scope of the False Claims Act if they commit tax fraud: In 2017, a mere 2,116 of the 366,655 individual tax returns submitted by DC residents reported an income of $1 million or more—i.e., less than 1% of the District’s residents who filed an individual tax return that year. See Selected Income and Tax Items for Individual Income Tax Returns for Tax Year 2017, DC Office of the Chief Financial Officer (Jan. 27, 2020), https://cfo.dc.gov/node/1456456. Of course, numerous DC businesses will fall within the scope of the False Claims Act when the Amendment becomes law.[3] See DC Code § 2–381.02(d).[4] Council of the District of Columbia, Committee Report on Bill 23-35, “False Claims Amendment Act of 2020”, (Nov. 17, 2020), at 2, available online at https://lims.dccouncil.us/downloads/LIMS/41625/Committee_Report/B23-0035-Committee_Report1.pdf.[5] Id. at 1-2.[6] Id. at 2.[7] See November 17, 2020 Engrossment to Bill 23-35, available online at https://lims.dccouncil.us/downloads/LIMS/41625/Meeting1/Engrossment/B23-0035-Engrossment1.pdf.[8] See DC Code § 47–4111(b).[9] See DC Code §§ 2–381.03(e) and (f).[10] See DC Code §§ 1–201.01 et seq.