Tax Professor Makes the Case for State Tax Whistleblower Statutes

In the third part of a four part series on qui tam suits, Jennifer Carr of Tax Analysts interviewed University of California, Davis School of Law tax professor Dennis J. Ventry, Jr. about his article, “Not Just Whistling Dixie: The Case for Tax Whistleblowers in the States.”  The article, which will be published in the Villanova Law Review, argues that states could benefit greatly from adopting tax whistleblower statutes or tax enforcement through state false claims acts (FCAs). 

In the article, Ventry argues that states are leaving billions of dollars “on the table” that a whistleblower program could help to shrink by closing the information gap.  Ventry claims that state tax agencies are “totally outgunned” and whistleblowers could assist by exposing and explaining a taxpayer’s noncompliance by providing detailed and unique information.  Moreover, Ventry argues that a “robust whistleblower program” in the states could have the effect of preventing tax noncompliance by adding significant risk to noncompliant taxpayers by increasing the probability that they will be detected by a whistleblower in the tax department, in an outside accounting firm, or outside counsel, or even a partner, associate, paralegal, or intern. 

Ventry also discussed the possibility that states would adopt what he called “mini-7623s” which would align them with the IRS whistleblower program.  Ventry pointed to successes in New York, the first state to specify tax claims under its FCA, such as Attorney General Eric Schneiderman using the program to sue Sprint Nextel for over $300 million, and the multimillion dollar settlement reached with a medical imaging company.  Towards the end of the interview, Ventry acknowledged the “parade of horribles” that some practitioner-critics have regarding FCA tax suits.  Although Ventry says that concerns need to be taken seriously when creating the state statute, abusive uses of the statutes have been the exception and not the norm.  To that end, Ventry said that he dedicated a lot of space in his upcoming article to describing how a properly drafted and implemented whistleblower program can minimize the potential harms that critics are concerned about.

If all this comes to fruition, it opens up the possibility of simultaneous state and federal tax whistleblower filings, which would be great for those whistleblowers whose claims arise under both sets of laws.