The use of False Claims Act (FCA) statutes with qui tam provisions as a basis to challenge a taxpayer's tax return filing position continues to be a disturbing trend in state and local taxation. Such statutes permit private individuals (i.e., 'whistleblowers') to sue taxpayers on behalf of the government by alleging that the taxpayer 'knowingly' failed to comply with a state or local tax obligation.

When a whistleblower files an FCA lawsuit, it is done 'under seal', which means it is not publicly disclosed. This gives the state's attorney general time to issue subpoenas for testimony and records, investigate the claim, and decide whether the state wishes to prosecute the case itself. If the attorney general declines to prosecute the case personally, the attorney general may still permit the whistleblower to proceed with the lawsuit.