District of Columbia Provides Qui Tam Tax Fraud Measures to False Claims Act | Jones Day

Enforcement of the district's tax laws had previously been left solely to government agencies. A newly enacted bill will make the district one of the few jurisdictions that will allow relatives to file Quitam lawsuits for violating the tax law.

The newly enacted Washington DC Act A23-0564 amends the district's False Claims Act to allow immediate action in the event of violations of the district's tax laws. These are legal disputes that allow private individuals assisting law enforcement to withhold part of government taxes and fraud penalties. The bill, signed by Mayor Bowser on January 13, 2021, is effective immediately unless the U.S. Congress jointly rejects it during its 30-day review period.

Most federal false claims laws mirror the federal false claims law, which does not allow action for tax violations. However, New York and Illinois have allowed their tax fraud claims laws to be fairly liberal in their application. The district's bill follows extensive changes to its Qui-Tam laws in New York in 2012. In contrast, Illinois passed a modified tax restriction that bans Qui-Tam measures only for income taxes and implicitly allows measures for sales tax fraud.

Law A23-0564 sets two criteria for a tax lawsuit: (i) The target defendant must have district earnings, taxable income, or sales in excess of $ 1,000,000. and (ii) the damage claimed in the claim is US $ 350,000 or more. The bill also increases the amount of rewards a quick claimant can receive from 10% to 30% of the collections resulting from the promotion. This new incentive could increase the private enforcement rate of the district's tax laws and put many businesses at increased risk of litigation.

Similar to New York City law, which requires consultation with the tax authorities before approving a tax measure, the district attorney general must consult the district chief financial officer ("CFO"). Contrary to the Illinois practice, a lawsuit may not be able to be brought if the transaction in question is currently under review or investigation by the CFO. The CFO cannot be required to provide tax information that violates federal law.

Proposals similar to the district change have yet to be considered in California and Michigan. This suggests that states are giving tax authorities an opportunity to review their tax laws for potential false claims based on tax violations.