Qui Tam for Tax?: Lessons from the States

By:  Franziska Hertel


Tax fraud costs the federal government billions of dollars annually. Qui tam litigation, which features individuals bringing lawsuits on behalf of the government, is a powerful tool for the government in its fight against many types of fraud. The False Claims Act, the federal government’s most potent qui tam mechanism, however, expressly excludes tax fraud from its scope. Recognizing this gap in coverage, the Internal Revenue Service has instituted a whistleblower program that pays individuals for bringing information on tax fraud to the attention of the Service. A small number of states, on the other hand, allow qui tam suits alleging violations of their tax laws.


This Note reviews the federal False Claims Act and compares it to three different models for involving individuals in the prosecution of tax fraud: the IRS whistleblower program, state false claims acts implicitly authorizing qui tam for tax, and the New York False Claims Act, the first statute to expressly authorize qui tam actions alleging tax fraud. This Note then argues that qui tam lawsuits no more threaten the privacy of taxpayers and the consistent and accurate application of the tax laws than do whistleblower programs, and points out that certain state practices have proven to alleviate potential risks associated with qui tam litigation in the realm of tax fraud.


After reviewing the substantial advantages qui tam litigation demonstrates relative to a whistleblower program, this Note concludes that the federal government and the states should amend their false claims acts to allow qui tam lawsuits alleging tax fraud.


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