Using the False Claims Act to Remedy Tax Expenditure Fraud

Abstract

The federal False Claims Act (FCA) might be used to combat fraudulent claims regarding tax expenditures. The FCA has been used to protect the public fisc by imposing liability upon anyone who makes a false or fraudulent claim relating to an expenditure of federal funds. A substantial share of government spending is implemented through tax credits and deductions granted to individuals and entities for taking particular actions promoted through the Tax Code. Government funds dedicated to such tax incentives – so-called “tax expenditures” – are themselves potentially subject to false claims – for example, when a borrower makes a false representation that a mortgage relates to a principle or second residence in order to claim a home mortgage interest deduction. This article explores how the FCA as currently enacted might be invoked to combat fraud that targets tax expenditures, as well as doctrinal counter-arguments to such application. We touch on the potential breadth of the FCA’s reach if it is deemed to encompass such claims, as well as the prospect of using other whistleblower mechanisms to achieve similar results.