Sales tax practitioners are familiar with the risk of audits by state tax departments if their sales tax collection is not up to snuff, but private qui tam actions also loom as a possibility. An ongoing case in Illinois, however, seems to limit this line of potential exposure.
Qui tam, or false claim actions, allow private individuals (as relators, or “ex rel.”) to bring a civil suit on behalf of the government. “Reverse” false claim actions involve suits where relators allege that another party has avoided paying the government money owed. In exchange for bringing a suit, a successful relator is entitled to a share of the payment owed to the government (and statutes often allow for treble, or triple, damages). Although most commonly related to Medicaid payments, qui tam actions can also be brought in several states for sales tax issues. No state has proved more popular for these qui tam actions than Illinois.
Illinois has been the hub of sales tax qui tam cases mostly because of one man, Stephen B. Diamond, the “King of Qui Tam.” Bloomberg Tax analysis shows that Diamond alone has filed more than 1,000 false claim actions in Illinois in the last 17 years, often pursuing dozens of cases concurrently. But his strategy might not be long lived. In 2012, Diamond successfully brought an action against My Pillow, Inc., winning $266,891 (his share of the treble damages), as well as attorney fees of $600,960.
However, the Illinois Appellate Court reversed the award of attorney fees because of the lack of independence between the lawyer (Diamond) and the relator-client (Diamond’s law firm). Accordingly, Stephen Diamond was only entitled to his share of the treble damages imposed against My Pillow, Inc. The case has been appealed to the Illinois Supreme Court, where arguments were held May 22, 2018.
It’s too soon to say how the Illinois Supreme Court will rule, but would-be relators would be well-advised to keep up with these most recent qui tam developments.
The case is Illinois ex rel. Schad, Diamond & Shedden PC v. My Pillow, Inc., Ill., No. 122487, oral argument May 22, 2018.
Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Should attorneys be able to collect attorneys’ fees when they are the relator in a qui tam action?
Get a free trial to Bloomberg Tax: State, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)