First Settlement of Tax Fraud Case Under New York False Claims Act

May 8, 2013 — The IRS Whistleblower Office, established by the Tax Relief and Health Care Act of 2006, authorizes whistleblowers with information about tax fraud to notify the government and receive a reward. Under the Act, government collaborators may receive anywhere from 15 to 30 percent of the amount the government collects based on a tipster’s information. To receive a reward involving a corporation’s tax violations, no minimum recovery is required. But when the information concerns a private individual, the taxpayer’s gross income must exceed $200,000 for each taxable year at issue and the total recovery must top $2 million.

The State of New York is now using its own whistleblower statute to target state and local tax violators. In 2010, New York’s False Claims Act was amended to allow whistleblowers to file suit under the statute in cases where false claims involve state and local tax law violations. The New York Attorney General may choose to take charge in the litigation, recovering damages of three times the actual amount of the tax violations, plus costs, fees, and penalties. As under the federal False Claims Act, the qui tam plaintiff retains a percentage of the amount for which the tax violator is found liable.

Tailor to the Stars Settles New York False Claims Act Tax Case

According to the New York Attorney General, the state’s amended False Claims Act has been used for the first time to successfully resolve a tax fraud matter. A former employee of tailor, Mohanbhai “Mohan” Ramchandani, owner of Mohan’s Custom Tailors, Inc., filed a false Claims Act lawsuit on behalf of the state, alleging that the tailor had falsified sales tax returns since 2002. Investigators discovered that Mohan had manipulated his taxable sales numbers to correspond with principles of numerology to make sure that the amounts always added up to a multiple of ten. According to Lexology, Mohan admitted that since 2002, he and his business had failed to pay $1.7 million in state and local sales taxes, and over $250,000 in state and local personal income taxes between 2007 and 2009.

Mohan is recognized as the tailor of choice for many famous New Yorkers, including former New York City mayors Rudy Giuliani and Edward Koch, now deceased, as well as Wilt Chamberlain, Patrick Ewing, and Walt Frazier.

To settle the charges, Mohan and his business pleaded guilty to criminal tax charges, admitting to reporting only $5.6 million of $28 million in taxable retail sales. Mohan will be sentenced to one to three years in prison and will pay $5.5 million in damages and penalties. The whistleblower will keep $1.1 million of that amount.

Inside Employees Notify the Government of Tax Fraud

As here, company insiders are usually the first to spot tax fraud and notify the government. Before speaking with the government about an employer’s tax scam, conscientious informants need to learn their own rights and how the process works. The whistleblower attorneys with Waters & Kraus provide tipsters with the legal experience they need. Contact us by email or call our IRS tax fraud lawyers at 855.784.0268 to discuss how we can protect your interests.

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