Thursday, June 19, 2014
Jordan Goodman Quoted in Qui Tam Article
Chicago-based Law Firm Filing Qui Tam Tax Actions
Driving National Discussion about Potential Abuses of State False
Excerpt from State Tax Notes, Monday, June 9, 2014
For more than a decade, a Chicago-based class action law firm
has been stepping into the role of "whistleblower" and filing
hundreds of qui tam tax actions under the
Illinois False Claims Act. The private suits filed
by the firm -- first as Beeler, Schad & Diamond PC and more
recently as Schad, Diamond & Shedden PC -- are driving much of
the national discussion about potential abuses of state false
claims acts that extend to taxes.
"It seems to me that the purpose of these suits isn't to get at
the correct amount of tax," said Jordan
Goodman, a partner in the Chicago office of
Horwood Marcus & Berk Chartered. "It's for the
awards given to the relator. The relator is making a lot of money
Goodman talks often about the steep combined penalties and
potential payouts in state false claims acts,
which create what he calls "perverse incentives" that can lead to
parasitic lawsuits. First, the relator in an Illinois whistleblower
action is entitled to at least 25 percent of any proceeds recovered
by the government -- regardless of whether that money is recovered
through litigation or in a settlement.
Second, while the treble damages for back taxes under false
claims acts naturally attract the most attention, Goodman said the
civil penalty -- generally $5,000 to $10,000 per false claim under
the federal law and $5,500 to $11,000 per false claim under the
Illinois statute -- can be just as oppressive, depending on what
counts as a false claim. If each monthly sales tax return is a
false claim carrying a $10,000 penalty, and 12 returns are filed in
one year, that's a $120,000 penalty. If every failure to collect
taxes on shipping and handling is a false claim, and the business
averages 10 sales into the state per month for 120 false claims,
that's a $1.2 million penalty for the year, which can turn into $12
million for the 10-year period covered by the false claims act.
Businesses in these suitsalso are potentially on the hook for
attorney fees. According to practitioners, Schad Diamond is seeking
maximum fees for filing the same complaint repeatedly, with only
the name of the business being sued changed.
"I have a client with approximately $100 of tax due over a
10-year period," Goodman said. "The relator wanted in the
mid-to-high five figures to pay for their attorney fees for filing
the suit. The relator got 50 times more than what was owed in tax.
My client was forced to pay because to litigate on the merits is an
Dyckman said the DOR is sympathetic to targeted businesses that
have hired reputable law firms and are paying large sums just to
try to get dismissals of the cases. That has generated a number of
settlements in the shipping and handling cases, in which businesses
paid double the amount of potential tax owed plus fees because
hiring a quality law firm to defend them would cost more than their
exposure, Dyckman said.
"The problem is, that's created a moral hazard," Dyckman said.
The settlements encourage the relator to file actions against big
companies for small sums to get two times the tax and fees from
businesses thatjust want to make the cases go away, he said.
How much Schad Diamond received in those settlements is unclear.
But a December 10, 2012, column in Crain's Chicago Business
followed up on the Revenue and Finance Committee's hearing that
year. Under the headline "State Blows the Whistle on This
Whistleblower," the columnist quoted Rep. Michael Zalewski (D) as
saying Schad Diamond isn't going after businesses that are
willfully avoiding taxes, but is only interested in collecting
damages and attorney fees.
"I'd imagine it amounts to millions," Zalewski told the
Copyright 2014 Tax Analysts. Reprinted with