The federal government, 29 states, and the District of Columbia have False Claims Acts designed to promote recovery of government money from wrongdoers through the efforts of private whistleblowers. Until recently, however, none of these laws specifically applied in the area of tax law. That changed in 2010, when New York became the first state explicitly to allow private citizens to sue on the government’s behalf for tax fraud.

This week saw the first settlement under the new tax provisions: a $5.5 million recovery against Mohanbhai “Mohan” Ramchandani and his prominent clothing business, Mohan’s Custom Tailors, Inc. Ramchandani and his business failed to pay at least $1.7 million in state and local sales taxes, despite passing the cost of those taxes on to customers. Ramchandani also failed to pay roughly $256,000 due on his personal income taxes. Ramchandani pleaded guilty to accompanying criminal charges.

The charges began as a qui tam suit by a private whistleblower, who will receive $1.1 million as a reward for bringing Ramchandani’s misconduct to light. This type of participation by a private citizen would not have been possible in a tax case prior to New York’s amending its FCA; the case is therefore seen by some advocates as a potent example for other states—and for the federal government—of the benefits to be gained by such legislation.

Read the entire press release, “A.G. Schneiderman Announces Arrest, Conviction And $5.5 Million Settlement In Tax Fraud Case Against Prominent Tailor”