Fraud by the Numbers: State False Claims Acts That Take on Tax Fraud
False Claims Act (FCA) enforcement is usually associated with government spending: a contractor overcharges an agency, a grantee misuses government funds, or a company falsely certifies compliance with contract requirements. But in a small number of non-Federal jurisdictions, FCAs can also target the other side of the ledger—money that should have been paid in taxes.
Zero versus ten. That is one way to illustrate the difference between the federal FCA and its counterparts in state and other jurisdictions. The federal FCA expressly excludes claims under the Internal Revenue Code.1 Nine jurisdictions outside the federal government allow for such action.2
Federal tax enforcement instead rests principally with the IRS, whose whistleblower program (created in 2006) can award 15% to 30% of collected proceeds in qualifying cases.3 Unlike the FCA’s qui tam model, however, whistleblowers cannot bring an enforcement action on the government’s behalf, and the IRS program has faced criticism for lengthy delays in resolving cases and paying awards.4
By contrast, seven states—Delaware, Hawaii, Illinois, Indiana, Nevada, New York, and Rhode Island—plus D.C. and Guam provide some avenue for tax-related claims under their FCAs.5 New York’s record shows how consequential this additional enforcement lever can be.
$590 million. That is approximately how much New York recovered in tax cases after expanding its FCA to expressly cover tax fraud in 2010.6 By 2020, about 204 tax whistleblower cases had been filed, and the number has continued to increase year-by-year.7
The New York law is reserved for significant cases: generally, a defendant must have at least $1 million in net income or sales in a relevant taxable year, and alleged damages must exceed $350,000.8
Even though these matters do not apply to federal taxes, the cases can get very large. For example, in 2018, Sprint agreed to a $330 million settlement over allegations that it failed to collect and remit state and local sales taxes, and in 2021, New York recovered $105 million from a hedge fund manager who settled allegations of tax fraud from a deferred-compensation income scheme. In 2024, Sotheby’s agreed to pay $6.25 million over allegations involving unpaid sales tax on art purchases.
More recently, in May 2026, four affiliated travel companies agreed to pay $4.5 million to resolve allegations that they concealed taxable dividends and avoided more than $1 million in corporate taxes. Approximately $1 million went to the whistleblower. Also, this year, two New York City truck rental companies and their accountant agreed to a $4.7 million settlement for a decade-long tax evasion scheme.
D.C. has followed a similar path, generally applying the same $1 million taxpayer and $350,000 damages thresholds.9 In 2024, the District obtained a $40 million settlement from Michael Saylor and MicroStrategy resolving allegations that Saylor avoided more than $25 million in D.C. income taxes by falsely claiming residency elsewhere—the largest income-tax-fraud recovery in the District’s history. And in June 2026, a political texting firm agreed to pay $1 million to resolve allegations that the company failed to collect and pay sales tax for a decade.
The numbers tell the larger story. Federal FCA tax exposure: zero. State FCA tax exposure: potentially treble damages, and civil penalties. In addition, under state FCA law the whistleblower not only has a financial stake in the recovery but also can pursue the claim in court. For businesses operating across state lines, tax risk can depend not only on how much is owed, but where it is owed.
For the nine state governments that created these FCA tax laws, the results are clear. They already have collected millions in revenue, which would have otherwise been lost to fraud.
This piece was written by Jagir Patel, an Associate at Phillips & Cohen
1 31 U.S.C. § 3729(d).
2 6 Del. Code Ann. tit. 6, § 1201(a)(7); Haw. Rev. Stat. Ann. § 46-171; 740 Ill. Comp. Stat. Ann. 175/3(a)(does not apply to personal income tax); Ind. Code Ann. § 5-11-5.5-2 (b)(6)(does not apply to income tax); Nev. Rev. Stat. Ann. § 357.040(1)(g); N.Y. State Fin. Law §189(4)(a)-(b); R.I. Gen. Laws § 9-1.1-3 (c) (does not apply to personal income tax); D.C. Code Ann. § 2-381.02; 5 Guam Code §§ 37101-37412.
3 26 U.S.C. § 7623.
4 See e.g., Grace Schepis, IRS Whistleblower Program’s Annual Report: Long Waits, Low Rewards, Whistleblower News Network (July 3, 2023), https://whistleblowersblog.org/corporate-whistleblowers/tax-whistleblowers/irs-whistleblower-programs-annual-report-long-waits-low-rewards/.
5 Maryland has an agency-based model modeling its tax whistleblower program on the IRS’ program.
6 Tax Whistleblower Resources, Kirby McInerney, https://www.kmllp.com/whistleblower-resources (last visited Aug. 20, 2026).
7 Id.
8 N.Y. State Fin. Law §189(4)(a).
9 D.C. Code Ann. § 2-381.02(d)(1)(B).
