Lawsuits Proceed Against Sprint, Citigroup Under New York False Claims Act

There have been a number of big cases in New York dealing with tax law making headlines in the past few days. The False Claims Act in NY does not explicitly exclude false claims concerning taxes, as the Federal FCA does, so whistleblower seeking to bypass concerns about the IRS whistleblower program may file here as well to seek recovery for a smaller set of tax noncompliance.

Sprint

A decision from the New York Court of Appeals is allowing the State to proceed in its False Claims Act lawsuit against Sprint for damages of around $300 million because of unpaid taxes by the cell phone carrier. The company reportedly failed to collect more than $100 million in taxes from New York customers and provide them to the State. Attorney General Eric Schneiderman’s office is leading this litigation.

Citigroup

In another case out of New York State, a professor at Indiana University is proceeding with a whistleblower lawsuit claiming Citigroup owes New York State $800 million in taxes as a result of the TARP bailout. With treble damages, the amount sought in the lawsuit under the New York False Claims Act is $2.4 billion.

The case stems from a decision by the U.S. Treasury to allow deductions for corporate losses. The whistleblower published a discussion paper on the Treasury’s exemption in 2011. Citigroup applied the Federal exemption to its state taxes as well. According to the individual, the Treasury exemption was not proper under federal law and even if it was, New York was not required to honor it.

New York declined to intervene and prosecute the case itself, but the lawsuit can continue on behalf of the people of New York under the whistleblower law. If the Indiana economist is able to recover, he will be entitled to a percentage of the reward between 25 and 30 percent (standard in these types of cases).

Vanguard

To finish out the trio of big cases in New York, there is a whistleblower lawsuit against Vanguard for unpaid taxes. The case brought by a former in-house tax attorney, claims improper transfer pricing in violation of NY tax law. Last month, a report commissioned by the whistleblower’s attorneys was sent to the IRS and SEC detailing the billions owed by the company for its wrongdoing.

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