Skip to Content


Misclassification of Employees May Form the Basis of an IRS Whistleblower Complaint, Part I

By Shauna Itri

Internal Revenue Code Generally: Withholding of Taxes

Under the Internal Revenue Code, employers must withhold federal income tax as well as social security tax from the wages they pay to employees. In addition, employers must pay social security and unemployment taxes on behalf of their employees.[1]  “These taxes are known collectively as ’employment taxes.'”  Greco v. IRS, 380 F. Supp. 2d 598, 613 (M.D. Pa. 2005).  Employers do not withhold and pay these employment taxes for independent contractors. See id. “In connection with payments to ‘independent contractors,’ employers only have to send annual information returns, on Form 1099 to the workers and on [a] Form[] 1099 to the IRS, indicating the income paid [to the independent contractor] during the year.” Id.[2]   “In light of these tax consequences, [the] proper characterization of the employment relationship is vital.” Halfhill v. United States IRS, 927 F. Supp. 171, 174-75 (W.D. Pa. 1996).  If an “employee” is “knowingly” misclassified, it could be the basis for an IRS Whistleblower Complaint or Form 211.

Internal Revenue Code Definition of “Employee”

Section 3121(d)(2) provides that for FICA tax purposes the term “employee” includes any individual who has the status of an employee under common law.[3] With certain exceptions not relevant here, the section 3121(d) definition of “employee” also applies for FUTA tax purposes. Sec. 3306(i). The IRS regulations state that the term “employee” includes “every individual performing services if the relationship between him and the person for whom he performs such services is the legal relationship of employer and employee.” Sec. 31.3401(c)-1(a), Employment Tax Regs. Guides for determining employment status are found in the following three substantially similar sections of the Employment Tax Regulations: sections 31.3121 (d)-1 (c); 31.3306 (i)-1; and 31.3401 (c)-1.  These sections provide that generally the relationship of employer and employee exists when the person or persons for whom the services are performed have the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but as to how it shall be done.   In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so.

[1] Congress has imposed social security taxes on the employer and employee under the Federal Insurance Contribution Act (FICA), 26 U.S.C. § 3101, et seq., and unemployment insurance taxes on the employer under the Federal Unemployment Tax Act (FUTA). See 26 U.S.C. § 3301, et seq. See also Joseph M. Grey Pub. Accountant, P.C. v. Commissioner, 119 T.C. 121, 126 (2002), affd. 93 Fed. Appx. 473, 2004 U.S. App. LEXIS 6662 (3d Cir. 2004).

[2] Form 1099 is required when the “salaries, wages, commissions, fees, and other forms of compensation for services rendered aggregates $600 or more.” 26 C.F.R. § 1.6041-1(a)(1)(i).

[3]  Section 3121(d)(2) defines an employee as “any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.” See also sec. 3306(i).

It is free to speak with our nationally recognized whistleblower attorneys:

How to Report Tax Fraud

By Arthur Stock

The Internal Revenue Service (“IRS”) has had a reward program for whistleblowers since 2006.   26 U.S.C 7623.   Several individuals have received rewards in the seven and eight digit range.  The process is simpler than filing a False Claims Act (“FCA”) complaint, and typically, very little is required from the whistleblower after the initial filing and interview.  However, the likelihood of recovery is very low—less than 1% of claims have led to a reward to date.

Underpayment of federal taxes can be committed by a corporation or individual, and the total amount of potential recovery—including interest and penalties—must be at least $2 million. In measuring potential damages for a long-running practice, keep in mind the applicable of statute of limitations for initiating an audit or enforcement action, which in most instances is three years.

Reporting a Tax Underpayment to the IRS

All that is required is filing a Form 211 with the IRS.  On this form, the whistleblower explains the tax underpayment and names the perpetrator.  Although many whistleblowers report tax frauds, the Form 211 needs to describe an underpayment, not a fraud.  There is no filing fee.  A Form 211 is confidential, and the IRS will not disclose the identity of a whistleblower until an award is made.

Since the goal of the Form 211 is to entice the IRS to take action, it is best to submit underlying documents demonstrating that a tax was underpaid.  For example, if the claim is that real estate was undervalued for purposes of estate tax calculation, the whistleblower might include an appraisal and/or other evidence of the correct value, such as documentation of the price of a recent sale of the property.  Many whistleblowers will not have access to relevant documents.  A former employee aware of a corporate fraud might have detailed knowledge of what occurred, but no documents at all.  Submission of documents is not required.  The IRS will always have access to tax returns, and it can receive additional documents through an audit or an administrative subpoena.

Whistleblower Interviews with the IRS

The IRS frequently interviews the whistleblower, often several months after the filing, but it is not required to do that.  Depending on the nature of the reported alleged fraud, the whistleblower may be interviewed more than once.  The whistleblower may even be asked to participate in an investigation, for example to explain the significance of documents that the IRS has obtained, but this is rare.  The IRS has complete discretion as to whether to initiate an audit or investigation, and whether to take any action on the basis of the investigation.

Whistleblower Rewards

If the IRS chooses to move forward and ultimately recovers money through either judgment or settlement, the whistleblower is entitled to receive a reward of fifteen to thirty percent of the amount recovered, including collection of any interest and penalties as well as the amount of the original underpayment.  If the IRS determines that the whistleblower’s contribution to the investigation was “less substantial,” the award may be lowered to 10%.

Because tax investigations are confidential, the IRS will not keep the whistleblower informed of developments in the case, and will not even confirm whether there is an ongoing investigation. Commonly, several years of complete silence go by before the IRS informs the whistleblower that there is – or much more frequently, there is not– an award.

BE CAREFUL:  The people most familiar with a corporate tax underpayment may be found by the IRS to have been participated in the fraudulent scheme.  There is no immunity for statements included in Form 211 or statements. One of the first large awards, of over $9 million, was awarded to a whistleblower who was incarcerated at the time of the award, following a conviction for participation in the  tax fraud he reported.  Consult your lawyer on the risks as well as the rewards of filing a Form 211 with the IRS.

It is free to speak with our nationally recognized whistleblower attorneys:

Violations of “Buy American” Laws Can Be Grounds for Lawsuits Under the False Claims Act

By Susan Schneider Thomas

In a two-part Executive Order (“EO”) issued earlier this month, the president took steps towards his campaign promise to promote “Buy American” and “Hire American” policies. This post focuses only on the “Buy” side of the EO.  Any tightening of Buy American policies at the federal procurement level raises the potential for violations that can be actionable under the False Claims Act (“FCA”).

Federal agencies have been directed to implement a tighter Buy American policy based on maximizing the use of American-made content in federal procurements and minimizing exemptions..

Statutory and Regulatory Background of Buy American Requirements

 By way of background, government contracts frequently include restrictions on the country of origin of the products that the government is purchasing. These are commonly referred to as “Buy American” requirements, although not all such requirements are created equal. The Buy American landscape is crowded and confusing, even to the point of having parallel statutes named the Buy American Act (41 U.S.C. §§ 8301-8305) and the Buy America Act (49 U.S.C. 5323(j) and 23 U.S.C. § 313) (which is different from the Buy American Act). Perhaps even more confusing, the Buy American Act does not actually force the government to buy American-made products, it only creates a preference. Thus even where the Buy American Act applies, the government can still purchase a foreign-made end product under various conditions, including disclosure by a vendor that it will be providing foreign products and price considerations.

The two main laws in this area are the 1933 Buy American Act (“BAA”), which requires the government to give preference to U.S.-made products in federal procurements whenever practicable, and the 1979 Trade Agreements Act (“TAA”), which largely supersedes the BAA by allowing items made in scores of designated countries with which the U.S. has certain trade agreements to be substituted for American products.  “Designated countries” are countries that U.S. trade policy chooses to favor — whether because the United States has entered into a free trade agreement (such as the North American Free Trade Agreement or the U.S.-Korea Free Trade Agreement) or because the country is small and still developing (as with Afghanistan or Haiti). FAR 25.003 lists these countries, and the list is updated regularly. Other pertinent statutes and regulations include the Berry Amendment, requiring the U.S. Department of Defense and Department of Homeland Security, to give preference to domestic food, textile and specialty metal sources and Defense Federal Acquisition Regulation Supplement 225.7017, singling out products such as photovoltaic devices to receive domestic manufacturing preferences. The country of origin restrictions typically apply also when Congress appropriates funds or grants to state and local governments. Additionally, many states may also impose separate “Buy American” or “Buy Local” requirements of their own.

Possible Tightening of Requirements and Enforcement

The tightening of the Buy American policies as announced by the current administration can potentially take many different directions.  For example, under the current regulatory interpretation used to fulfill the BAA’s “substantially all” requirement, the cost of U.S.-sourced components must make up more than 50 percent of the total cost of an end product for that product to be considered U.S-made, while a commercial off-the-shelf item is only required to be manufactured in the U.S., regardless of where its components come from.  There has already been some Congressional support to raise the sourcing requirement through the Buy American Improvement Act, introduced in February, but agencies could also simply decide to increase the percentage of required U.S.-sourced components or restrict the extent of leeway given on commercial off-the-shelf items.  Additionally, changes in trade agreements or types of trade agreements that qualify for exceptions under the TAA could substantially alter the Buy American standards.

The White House has also signaled that it might allow federal contracting officers to take into account the impact of unfair trade practices like “dumping” — the selling of items below cost to drive out competition — or other problematic assistance from foreign governments that arguably make American products less commercially competitive.  The U.S.-made components requirements could also be applied further down the manufacturing chain to subcomponents, making it harder for manufacturers to demonstrate that their products qualify for Buy American procurement.

FCA Lawsuits Stemming from Violations of Buy American Requirements

Presumably, any or all of these changes could lead to more regulatory or procurement violations, and thus be accompanied by opportunities to assert FCA violations in lawsuits filed by whistleblowers.  One possible violation would be companies that get bogged down in the specifics of different statutes and regulations and simply try to certify, on an across-the-board basis, that their products comply with Buy American regulations.  Such broad assertions may well constitute false certifications.  Similarly, falsely claiming that items were manufactured in designated countries would violate the laws.

As is true with most FCA lawsuits, however, the devil is in the details.  Precisely what laws or regulations are being violated?  Are the requirements clearly articulated?  Were the violations committed with knowledge, recklessness or deliberate indifference to the statutory or regulatory requirements? Are the violations material to the government’s decision to enter into the procurement order or contract, or to continue paying under that contract?  Experienced FCA counsel can help you assess whatever perceived violations you may have observed and determine whether there is an FCA case worth pursuing.


It is free to speak with our nationally recognized whistleblower attorneys:

Advice to a Potential Relator About Taking Documents from an Employer to Support a False Claims Act Lawsuit

By Sherrie Savett

Common Sense Advice Your Client Can Understand

It is important to advise your Relator client about the parameters of securing documents and information derived from an employer’s or former employer’s computer system.  Many clients still work at the company or have left and some have signed confidential agreements.  They are nervous about “stealing” information or breaching their agreement.

Lay language is needed to relax the client and have them understand they are not breaking the law, but instead are enforcing it.  Below is some useful language.

We believe that the law protects you when taking documents from your employer to support your allegations of fraud.  Because whistleblowers are encouraged to come forward, there is a policy to allow a relator to take evidence and documents from his or her employer so long as the documents are ones that the Relator would have seen during the scope of his or her regular employment.  While a relator is not allowed to root through the entire document database of a business to search for a fraud, we believe you are within the bounds of legal protection here.

Follow With a Sound Legal Analysis 

Advise your Relator client that he or she is permitted to take documents and information when obtaining the materials was reasonably necessary to pursue a qui tam action.  For example, in one recent case, a court noted both “a public policy exception to confidentiality agreements to protect whistleblowers who appropriate company documents” and an employer’s countervailing interest in “the enforcement of confidentiality agreements.”  Erhart v. BofI Holding, Inc., 2017 WL 588390, at *12 (S.D. Cal. Feb. 14, 2017).  Thus, the proper means to balance these competing interests is to ask whether “removal of documents was reasonably necessary to support [a relator’s] allegations of wrongdoing” Id. at *13 (internal quotation marks omitted).

Various courts across the county have reached similar rulings.  See e.g. Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1062 (9th Cir. 2011) (explaining that if an employer asserts a counterclaim against a relator for breach of a confidentiality agreement, the relator “need[s] to justify why removal of the documents was reasonably necessary to pursue an FCA claim”); Shmushkovich v. Home Bound Healthcare, Inc., 2015 WL 3896947, at *2 (N.D. Ill. June 23, 2015) (“The protections afforded self-help discovery under the False Claims Act . . . have only extended to the collection of materials that are reasonably related to the formation of a case.”); U.S. ex rel. Notorfransesco v. Surgical Monitoring Assoc., Inc., 2014 WL 7008561, at *5 (E.D. Pa. Dec. 12, 2014) (distinguishing between “materials [that] are reasonably necessary to pursuing [a relator’s] FCA claim” and “information that is not related to proving [the] claim”) (internal quotation marks omitted); Walsh v. Amerisource Bergen Corp., No. CIV.A. 11-7584, 2014 WL 2738215, at *7 (E.D. Pa. June 17, 2014) (similar); U.S. ex rel. Ruhe v. Masimo Corp., 929 F. Supp. 2d 1033, 1039 (C.D. Cal. 2012) (denying a defendant’s motion to strike documents obtained by relators in alleged violation of a confidentiality agreement where the relators “limited their taking to documents relevant to the alleged fraud”).

Furthermore, the HIPAA statute specifically allows whistleblowers to disclose protected health information (PHI) to attorneys to determine how to proceed legally.  Below is the exact language of the statute:

45 CFR 164.502 – Uses and disclosures of protected health information: General rules.

(j)Standard: Disclosures by whistleblowers and workforce member crime victims –

(1)Disclosures by whistleblowers. A covered entity is not considered to have violated the requirements of this subpart if a member of its workforce or a business associate discloses protected health information, provided that:

(i) The workforce member or business associate believes in good faith that the covered entity has engaged in conduct that is unlawful or otherwise violates professional or clinical standards, or that the care, services, or conditions provided by the covered entity potentially endangers one or more patients, workers, or the public; and

(ii) The disclosure is to:

(A) A health oversight agency or public health authority authorized by law to investigate or otherwise oversee the relevant conduct or conditions of the covered entity or to an appropriate health care accreditation organization for the purpose of reporting the allegation of failure to meet professional standards or misconduct by the covered entity; or

(B) An attorney retained by or on behalf of the workforce member or business associate for the purpose of determining the legal options of the workforce member or business associate with regard to the conduct described in paragraph (j)(1)(i) of this section.


You will have an empowered client who understands what he or she can and cannot do.  That client is then better able to transmit valuable information to capable qui tam attorneys who then have better ammunition to use when writing the complaint.

It is free to speak with our nationally recognized whistleblower attorneys:

Another Appeals Court Limits One of the Barriers to a Whistleblower Lawsuit

By Susan Schneider Thomas

In United States ex rel. Hayes v. Allstate Ins. Co., et al., Case No. 16­705, 2017 WL 1228551 (2d Cir. Apr. 4, 2017), the Second Circuit addressed an objection that it lacked jurisdiction over a whistleblower’s qui tam suit pursuant to what is known as the “first-to-file” rule.   31 U.S.C. § 3730(b)(5). That provision of the False Claims Act (“FCA”) states that “[w]hen a person brings an action under [the FCA], no person other than the Government may . . . bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5).  Defendants argued that an earlier ­filed case deprived the court of jurisdiction pursuant to the first-to-file rule.  Before addressing a multitude of arguments on the merits, the Second Circuit joined the D.C. Circuit in holding that the FCA’s first-to-file rule is not jurisdictional.  2017 WL 1228551 at *3.  Accordingly, the court did not resolve the first-to-file challenge, since it chose instead to rule on other issues.

Importance of the Court’s Ruling

The court’s determination that a first-to-file issue is not jurisdictional is important for several reasons.  First, unlike jurisdictional issues, which a court must consider at any stage of the proceedings, non-jurisdictional challenges can be waived if not timely asserted.  Jurisdictional issues must even be considered sua sponte by a court at any stage of the proceedings. Second, challenges that are non-jurisdictional are more easily remedied by amendment, whereas jurisdictional challenges involve complicated analysis of whether or when an initial complaint can be amended.  The procedural process varies also, for example, in terms of burden of proof and ability to introduce evidence outside the complaint.  Finally, jurisdictional issues are not subject to equitable exceptions, which may apply to certain non-jurisdictional challenges.

Circuit Courts and the First-to-File Rule

As the court noted, there is a split among the circuit courts on the question whether first-to-file challenges are jurisdictional.   The Fourth, Fifth and Sixth Circuits have either held or just assumed that the issue is jurisdictional.  See U.S. ex rel. Carter v. Halliburton Co., 710 F.3d 171, 181 (4th Cir. 2013), aff’d in part, rev’d in part on other grounds sub nom. Kellogg Brown & Root, 11 135 S. Ct. 1979 (2015); U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376–77 (5th Cir. 2009); Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir. 2005).  On the other hand, in 2015, in U.S. ex rel. Heath v. AT&T, Inc., 791 F.3d 112 (D.C. Cir. 2015), the D.C. Circuit broke ranks with most other courts and concluded that the first-to-file rule was not jurisdictional. Id. at 120-21. As the D.C. Circuit observed, the statutory language states that no person other than the government can bring a (later) action, which “speaks only to who may bring a private action and when,” Id. at 120, but “does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts.” Id. (quotation omitted).

In the Hayes decision, the Second Circuit noted that the Supreme Court has warned against careless use of the term jurisdiction, 2017 WL 1228551 at *2, citing Sebelius v. Auburn Regʹl Med. Ctr., 133 S. Ct. 817, 824 (2013). Thus, the Supreme Court has “adopted a ‘readily administrable bright line’ for determining whether to classify a statutory limitation as jurisdictional.”  2017 WL 1228551 at *2. A court should find that a provision is jurisdictional only if Congress has clearly stated the jurisdictional component and absent such a clear statement . . .  ‘courts should treat the restriction as non-jurisdictional in character.’” Id.  As the D.C. Circuit had held, the first‐to‐file rule provides that “no person other than the Government” may bring an FCA claim that is “related” to a claim already “pending, ” 31 U.S.C. § 3730(b)(5), which makes no reference to jurisdiction. Heath, 791 F.3d at 121.

The First-to-File Rule and Limitations on Jurisdiction

Both the D.C. Circuit and the Second Circuit contrasted the language of the first-to-file bar with other provisions in the FCA that clearly state limitations on jurisdiction.  For example, there is a clear statement that “[n]o court shall have jurisdiction over an action brought by a former or present member of the armed forces … against a member of the armed forces arising out of such person’s service ….”   31 U.S.C. § 3730(e)(1).  Similarly, the FCA provides that “[n]o court shall have jurisdiction over an action brought . . . against a [government] official if the action is based on evidence or information known to the Government when the action was brought.” 31 U.S.C. § 3730(e)(2)(A).

Interestingly, the simple test of whether the provision in question refers explicitly to the court’s jurisdiction has been the subject of discussion among courts dealing with challenges under the Public Disclosure Bar (“PDB”) of the FCA, where a statutory amendment enacted as part of the Patient Protection and Affordable Care Act deleted a prior reference to jurisdiction. See Patient Protection and Affordable Care Act, PL 111-148, March 23, 2010, 124 Stat 119 (amending 31 U.S.C. § 3730(e)(4) to change the language of the PDB from “[n]o court shall have jurisdiction” to “[t]he court shall dismiss”).   Most courts have concluded that the elimination of the term jurisdiction in the statutory provision resulted in the PDB no longer being considered to be jurisdictional. E.g., U.S. ex rel. Advocates for Basic Leg. Equal., Inc. v. U.S. Bank, N.A., 816 F.3d 428, 433 (6th Cir. 2016)(“ Congress removed the jurisdictional language, and the different language leads to a different meaning. The public disclosure bar is no longer jurisdictional”); U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 300 (3d Cir. 2016)(“amended version does not set forth a jurisdictional bar”);  United States ex rel. Osheroff v. Humana, Inc., 2015 WL 223705 (11th Cir. Jan. 16, 2015)(amendments converted the public disclosure bar from a jurisdictional bar under Fed. R. Civ. P. 12(b)(1) into grounds for dismissal for failure to state a claim under Fed. R. Civ. P. 12(b)(6));  U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916-17 (4th Cir. 2013)(after the 2010 amendments, “the public-disclosure bar is no longer a jurisdiction-removing provision.” ).


The Second Circuit’s common-sense interpretation of the first-to-file provision of the FCA will lessen the impact of the rule and potentially permit more whistleblower cases to move forward.

It is free to speak with our nationally recognized whistleblower attorneys:

The History of the False Claims Act and the Critical Role of Whistleblowers in Helping the Government Combat Fraud

By Joy Clairmont

Congress enacted the False Claims Act (“FCA”) more than a hundred and fifty years ago to combat fraud against the government by empowering private citizens to assist in this fight. In the early years of the Act, during the Civil War, fraudulent practices exposed under the law included companies selling rancid food, ailing mules, and defective weapons to the Union Army. However, the Act was never limited to the military sphere, but rather was intended as a broad and flexible tool for eradicating fraud throughout all aspects of government.

In more recent times, the Act has been used to root out fraud involving a great variety of government agencies including the Department of Education, the Food and Drug Administration and the Centers for Medicare and Medicaid Services. In particular, the Act has been instrumental in addressing healthcare fraud, which is responsible for many billions of dollars in federal spending annually.

The history of the FCA reveals two longstanding aims: strongly encouraging private parties (relators) to play a significant role in fraud enforcement as a necessary supplement to the government’s finite resources, and widely reaching all types of fraud that cause financial loss to the government. See Rainwater v. U.S., 356 U.S. 590, 592 (1958) (“It seems quite clear that the objective of Congress was broadly to protect the funds and property of the Government”); United States v. Neifert-White Co., 390 U.S. 228, 233 (1968) (the FCA “reaches beyond claims which might be legally enforced to all fraudulent attempts to cause the Government to pay out sums of money”); United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 306 (3d Cir. 2011) (pointing to “Congress’ expressly stated purpose that the FCA should reach all fraudulent attempts to cause the Government to pay out sums of money”).

Over the Years Congress Has Strengthened the False Claims Act to Encourage Whistleblowers to Report Fraud

From 1943 until 1986, the FCA contained an insurmountable jurisdictional bar, which effectively foreclosed fraud detection and enforcement under the Act. During this time, the FCA barred jurisdiction over any claim “whenever it shall be made to appear that such suit was based upon evidence or information in the possession of the United States, or any agency, officer, or employee thereof, at the time such suit was brought.” 31 U.S.C. § 232(C) (1976).

Courts broadly construed this language as categorically prohibiting any qui tam relator from bringing a case in which the government was already aware of the allegations of fraud. Courts enforced this absolute bar even when it was the relator himself who first reported the fraud to the government, as relators were legally required to do under the Act.[1]  As a consequence of this perverse catch-22 for potential relators, during this time, fraud against the government went largely unidentified and unprosecuted. Predictably, government fraud skyrocketed.

The 1986 False Claims Act Amendments

In 1986, recognizing that the FCA was “in desperate need of reform” and that “the Government need[ed] help and, in fact, need[ed] lots of help to adequately protect the Treasury against growing and increasingly sophisticated fraud[,]” Senator Charles “Chuck” Grassley (R-IA) spearheaded “much needed amendments to the False Claims Act.”[2]

Significantly, the 1986 Amendments eliminated the absolute government knowledge defense.[3] Congress replaced it with a mechanism known as the “public disclosure bar,” which was specifically tailored only to preclude qui tam lawsuits based on information already known to the government through certain enumerated government proceedings and reports or the news media. S. Rep. 99-345, 1986 U.S.C.C.A.N. 5266, 5295.  “The goal of this [new] provision was to ensure that any individual qui tam relator who came forward with legitimate information that started the Government looking into an area it would otherwise not have looked, could proceed with an FCA case.”  S. Rep. 110-507 at 5.

Congress passed several amendments to the FCA after 1986 to further strengthen its provisions and correct certain judicial decisions that had limited the scope of the Act.[4]

The False Claims Act has been Enormously Successful in Fighting Fraud

With the assistance of private individuals and entities serving as whistleblowers, the FCA has been enormously successful in returning money to the federal fisc. In less than thirty years, in the healthcare arena alone, the government has recovered more than $31.1 billion of taxpayers’ funds via the FCA.[5]


[1]              See United States ex rel. Stinson, Lyons, Gerfin  & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d  1149, 1153-54 (3d Cir. 1991) (discussing such “restrictive interpretations” as United States ex rel. Wisconsin v. Dean, 729 F.2d 1100, 1106 (7th Cir. 1984) (holding that the “district court had no jurisdiction over a qui tam action brought by Wisconsin based on information of Medicaid fraud the state had uncovered because the state had reported the Medicaid fraud to the federal government as required under the Act”)).

[2]        U.S. Senate, Subcommittee on Administrative Practice and Procedure of the Committee on the Judiciary, S. 1562, Hearing, pg. 2, Sept. 17, 1985 (S. Hrg. 99-452). Washington: Government Printing Office, 1986; The Grassley Amendments, Pub.L. No. 99-562, 100 Stat. 3153 (Oct. 27, 1986).

[3]        See Merena v. Smithkline Beecham, 52 F. Supp. 2d 420, 441 (E.D. Pa. 1998), rev’d on other grounds, 205 F.3d 97 (3d Cir. 2000) (finding that one of the purposes of the 1986 amendments to the FCA was “to prevent the harsh preclusive effect of mere governmental knowledge or investigation.”).

[4]               See, e.g., The Fraud Enforcement and Recovery Act (“FERA”), Pub. L. No. 111-21, § 4, 123 Stat. 1617; Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111-203, 124 Stat. 1376 (July 21, 2010); The Patient Protection and Affordable Care Act,  Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010).

[5]        U.S. Dep’t of Justice, Fraud Statistics – Overview October 1, 1987 – September 30, 2015 (Nov. 23, 2015), (last visited March 1, 2017).

It is free to speak with our nationally recognized whistleblower attorneys:

Small Business Association 504 Loan Program and Liability under the False Claims Act

By Shauna Itri 

Basics of the Small Business Association 504 Loan Program

The Small Business Association (“SBA”) 504 Loan Program offers small businesses long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. A Certified Development Company (“CDC”) is a nonprofit corporation certified by the SBA that generates, closes, and services 504 loans.

Financing 504 projects typically consists of (1) a contribution from the borrower covering approximately 10 percent of the project costs; (2) a loan obtained from a CDC and assigned to the SBA, covering approximately 40 percent of the project costs and certain administrative costs, collateralized by a second lien on the project property; and (3) a loan secured from a private sector lender covering the remainder of the project costs (approximately 50 percent) and collateralized by a first lien on the project property. 13 C.F.R. § 120.801, § 120.900.

In general, a borrower applies for 504 financing through a CDC. If the SBA approves the loan application, the SBA issues a loan authorization agreeing to guarantee part of the financing for the project if certain conditions are met. After the loan authorization, projects usually require interim financing before the completion of the 504 project. This interim financing is often provided by the same private sector lender that provides a portion of the permanent financing. Once the 504 project is completed, the CDC is responsible for closing the 504 loan. If all the requirements of the loan authorization are met, the loan is bundled with other loans and sold on the public market as a debenture. The debenture is guaranteed 100 percent by the SBA with the full faith and credit of the United States. Proceeds from the sale of the debenture fund the 504 loan and pay off the interim loan.

Before the debenture is issued, the interim lender must certify the amount disbursed. The CDC must certify that the project was completed in accordance with the final plans and specifications. 13 C.F.R. § 120.891.

Following the completion of the project, certifications must be made before the 504 loan closing, the interim lender, the borrower, and the CDC must certify that since the date of the loan application, there has been no unremedied substantial adverse change in the borrower’s financial condition or ability to repay the 504 loan. 13 C.F.R. § 120.892.

The SBA may decline to close the debenture, direct the transfer of the 504 loan to another CDC, or cancel its guarantee of the debenture prior to sale if the CDC, third party lender, or the borrower failed to disclose or misrepresented a material fact to the SBA regarding the project or the 504 loan, or if the SBA determines that there has been an unremedied material adverse change since the 504 loan was approved. 13 C.F.R. § 120.960.

SBA 504 Loan False Certifications That Can Violate the False Claims Act

Prior to the SBA 504 Loan closing, the bank must make the following certifications to the SBA:

  • Bank executed the Interim Lender Certification certifying that (1) it had no knowledge of any unremedied substantial adverse change in the Borrower’s financial condition since the date of the application for the SBA 504 Loan; and (2) the Bank had disclosed to the SBA all material information known to it and necessary to ensure that the Interim Lender Certification was not misleading.
  • The Bank executed a Third Party Lender Agreement certifying that all the information that it provided to the SBA, including all information regarding the Borrower’s financial condition, is accurate and that the Bank had not withheld any material information.

Prior to the SBA 504 Loan closing, the CDC must make the following certifications to the SBA:

  • CDC executed an Authorization certifying that (1) there has been no substantial unremedied adverse change in the Borrower’s financial condition, organization, operation, or assets, as set forth on the CDC Certification (SBA Form 2101), and (2) all elements of Project Costs have been paid in full and that the Interim Lender, Third Party Lender, Borrower, and CDC have each contributed to the Project in the amount and manner authorized by SBA.
  • CDC executed a CDC Certification certifying that (1) it has obtained all necessary agreements and certifications set forth in the Authorization, which have been properly completed and executed without modification; (2) since the date of Borrower’s application to CDC for this loan, there has been no unremedied substantial adverse change in the financial condition of Borrower and no change in the operation or assets of Borrower; (3) Borrower currently occupies, or with the prior approval of SBA, will occupy within a reasonable period of time, the percentage of the Project required by the Authorization; and (4) CDC has disclosed to SBA all material information known by CDC and necessary to ensure that this Certification is not misleading.

Relying on these types of representations and certifications, the SBA transmits money to banks and borrowers. If the borrower subsequently experiences material (had a natural tendency to influence CDC’s decision to close the SBA 504 Loan and the SBA’s decision to fund the SBA 504 Loan) unremedied substantial adverse changes, and the bank intentionally fails to inform the SBA, then the bank potentially made false representations and certifications to the SBA to induce the SBA to close the SBA 504 Loan for the borrower to collect the SBA 504 Loan proceeds.

It is free to speak with our nationally recognized whistleblower attorneys:

Applying the Anti-Kickback Statute to Pursue Qui Tam Whistleblower Actions Under the Federal False Claims Act and the Delaware False Claims Act

By Daniel Miller 

Violations of the Anti-Kickback Statute Form the Basis of False Claims Act Liability

Congress has long viewed the elimination of kickbacks as central to any efforts to combat Medicare and Medicaid fraud and abuse.  United States v. Greber, 760 F.2d 68, 70-71 (3d. Cir. 1985).  Because kickback schemes negatively affect the integrity of federal health care programs, government payers have a strong interest in ensuring the continued viability of False Claims Act (“FCA”) actions to deter and redress health care fraud predicated upon kickbacks.  United States ex rel. Charles Wilkins and Daryl Willis v. United Health Group, Inc. et al., (3d Cir. Oct. 2010) (No. 10-2747) (Brief for the United States as Amicus Curie Supporting Appellant).

To protect against the erosion of patient care and patient safety, courts uniformly agree that compliance with the Anti-Kickback Statute (“AKS”) is a material condition of payment under the Medicare/Medicaid programs.[1]

These and other courts have held that a person or entity who violates the FCA and causes another to submit claims to the government has violated the FCA regardless of what form the claim or statement takes.  Many of these courts have reasoned that the claims are false, and thus violate the FCA, because there is a false certification – either express or implied – as to compliance with the AKS each time a claim is submitted.[2]

Moreover, the AKS was recently amended to expressly state what these courts had already held, namely, that a violation of the AKS constitutes a “false or fraudulent” claim under the FCA.  42 U.S.C. § 1320(a)-7b(g).

The Delaware Anti-Kickback Statute And Its Use In Qui Tam Actions Under The Delaware False Claims Act

The Delaware Anti-Kickback Statute (“DAKS”) makes it unlawful:

  • to solicit or receive any kickback, rebate or bribe directly or indirectly, overtly or covertly, in cash or in kind “in return for referring an individual to a provider for the furnishing or arranging for the furnishing of any medical care or medical assistance for which payment may be made in whole or in part under any public assistance program. 31 Del. C. § 1005(a)(1);
  • to offer or pay any remuneration (including any kickback, bribe or rebate) directly or indirectly, in cash or in kind to induce any other person “to refer an individual to a provider for the furnishing or arranging for the furnishing of any medical care or medical assistance for which payment may be made in whole or in part under any public assistance program. 31 Del. C. § 1005(b)(1); and
  • for a provider to charge, solicit, accept or receive for any service provided to a recipient, money or other consideration in addition to or at a rate in excess of the rates established by the State for such item or service. 31 Del. C. § 1005(c)(1).

Thus, a health care provider such as a hospital violates the DAKS by offering remuneration and incentives, in various forms, to induce physicians to make referrals to the hospital for health services billed to Medicare and Medicaid. Similarly, physicians violate the DAKS by accepting remuneration in exchange for referrals.  As explained above, these underlying DAKS violations provide the foundation for false claims act liability under the Delaware FCA.


The AKS and the DAKS are broadly interpreted statutes which can form the foundation of liability for qui tam actions brought by whistleblowers under the Federal and Delaware false claims acts.

[1] See United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004); United States ex rel. Roberts v. Aging Care Home Health, 2007 U.S. Dist. LEXIS 92864, *11 (W.D. La. Dec. 17, 2007); United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 20 F.Supp.2d 1017, 1042 (S.D. Tex. 1998); United States ex rel. Conner v. Salina Regional Health Ctr., 543 F.3d 1211, 1223 n.8 (10th Cir. 2008); United States ex rel. McNutt v. Haleyville Medical Supplies, 423 F.3d 1256, 1259-1260 (11th Cir. 2005); and United States v. Rogan, 459 F. Supp. 2d 692, 717 (N.D. Ill. 2006), aff’d, 517 F.3d 449 (7th Cir. 2008).

[2] See, e.g., United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008); United States ex rel. Roberts, 2007 U.S. Dist. LEXIS 92864, *11 (holding defendants both presented a false or fraudulent claim for payment and relied on a false or fraudulent statement or record to obtain payment from Medicare once Defendants obtained payment from Medicare for services “performed under a prohibited referral).  United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir.1997); United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 245 (3d Cir. 2004); Mason v. Medline Industries, Inc., 2010 WL 653542, at *5-9 (N.D. Ill. Feb. 18, 2010); United States v. ex rel. Jamison v. McKesson Corp., 2009 WL 3176168 (N.D. Miss. September 29, 2009); In re Pharmaceutical Indus. Average Wholesale Price Litig., 491 F. Supp. 2d 12, 17-18 (D. Mass. 2007); United States ex rel. Bidani v. Lewis, 264 F. Supp. 2d 612, 615-16; United States ex rel. Franklin v. Parke-Davis, 2003 WL 20048255 (D. Mass. August 22, 2003); United States ex rel. Pogue v. Diabetes Treatment Centers of America, 238 F. Supp. 2d 258, 264 (D.D.C. 2002); and United States ex rel. Bartlett v. Tyrone Hospital, Inc., 234 F.R.D. 113, 121 (W.D. Pa. 2001).

It is free to speak with our nationally recognized whistleblower attorneys:

Unexpected Problems with the Qui Tam Seal

By Arthur Stock

By law, qui tam cases must be filed under seal.  This means that there is no public record of the case having been filed, and the defendant is unaware of the case until the seal is lifted.  A plaintiff who breaks the seal by discussing the seal publicly may forfeit all right to recover in the action – even if the government takes it over, and wins a judgment or enters into a settlement.  While it is fairly simple to avoid issuing a press release, the seal requirement can cause complications in unexpected circumstances, where the legal requirement to stay silent conflicts with a different legal requirement to disclose.

Conflict #1: Pending Cases Against the Same Defendant

Many qui tam whistleblowers are employees or ex-employees of the defendant, and may have other lawsuits against the same defendant, for wrongful discharge, violation of the WARN Act (which requires advance of layoffs by large employers, or age, race, or gender discrimination).  In such a case, a plaintiff may be asked at trial or at deposition whether they have any other pending cases against the same defendant.  Disclosure will break the seal, refusing to answer might result in dismissal of the other action, and a false answer could lead to both loss of the other case and a charge of perjury.

Conflict #2: Disclosure of Assets

Bankruptcy Courts require disclosure of all assets to the Bankruptcy court.  This disclosure is filed publicly.  A pending lawsuit, including a qui tam action, is an asset, because it may result in receiving money in the future.  Again, disclosure to the Bankruptcy Court may break the seal, but failure to disclose could be Bankruptcy fraud, potentially a criminal violation.

The same issues commonly arise in divorce and child support proceedings:  Assets must be disclosed.

Conflict #3: Government Program Eligibility

Eligibility for many government programs–ranging from Small Business Administration loans to some Veterans Benefits to Section 8 housing subsidies and food stamps–also depends on the assets of the applicant, although the requirements for disclosure vary widely from program to program, and some may not require disclosure of pending lawsuits.

If you have a pending qui tam case and any of these situations arise in your life, make sure to talk to your qui tam attorney before taking any action.  DON’T RELY SOLELY ON YOUR DIVORCE OR BANKRUPTCY ATTORNEY.  Even the most experienced attorneys in these areas may never have come across a qui tam plaintiff before, and may accidentally break the seal or otherwise get you into trouble.

Berger & Montague, P.C.  has successfully advised many of our clients through these minefields, without any additional cost to them.

It is free to speak with our nationally recognized whistleblower attorneys:

What Happens If a Prospective Employer Refuses to Hire You Because You Have Been a Whistleblower Before?

By Susan Schneider Thomas

Although the federal False Claims Act (“FCA”) and most state statutes provide a whistleblower with claims against retaliation by an employer, it is not clear whether that protection extends beyond the specific company that you reported against.  Unfortunately, some prospective or subsequent employers might try to avoid hiring you or even fire you if your prior litigation comes to light.  Are you protected in that situation?

There really isn’t a clear answer to that question.  And one warning about this entire discussion – although we will talk about protection against retaliation, it is important to understand that all a statute can do is allow you to sue if you believe you have been retaliated against.  You are not “protected” in the sense that being fired or refused a job can’t happen.

The Federal False Claims Act’s Anti-Retaliation Provision

Focusing on the federal FCA, there were changes made to the anti-retaliation provision in 2010.  The newer provision has a broader reach, but it is still not clear how far that reach extends.

Under both the prior version of the anti-retaliation provision and following the 2010 amendment, courts have reached different decisions as to whether an employer could be liable for retaliation in a situation where the employee’s conduct involved reports of wrongdoing by another entity.  Compare United States ex rel. Sanchez v. Lymphatx, Inc., 596 F.3d 1300, 1304 (11th Cir. 2010) (“If an employee’s actions, as alleged in the complaint, are sufficient to support a reasonable conclusion that the employer could have feared being reported to the government for fraud or sued in a qui tam action by the employee, then the complaint states a claim for retaliatory discharge under § 3730(h).”); Sefen ex rel. United States v. Animas Corp., 2014 WL 2710957 (E.D. Pa. 2014) (dismissing plaintiff’s retaliation case because he failed to allege any connection to a false claim for payment against his employer); Mann v. Olsten Certified Healthcare Corp., 49 F. Supp. 2d 1307, 1314 (M.D. Ala. 1999) (“Whether the employee engaged in conduct from which a fact finder could reasonably conclude that the employer could have feared that the employee was contemplating filing a qui-tam action against it or reporting the employer to the government for fraud”) with Townsend v. Bayer Corp., 774 F.3d 446, 459 (8th Cir. 2014) (retaliating employer need not be accused of or involved in fraud for purposes of facing liability under § 3730(h)(1)); Cestra v. Mylan, Inc., 2015 WL 2455420 (W.D. Pa. 2015)(“Contrary to Defendants assertion, § 3730(h)(1) does not provide that a plaintiff will only be covered by this provision if the terminating employer either (a) violated the FCA or (b) had a close relationship with or was influenced by the target of the investigation.”); United States ex rel. Lang v. Nw. Univ., 2005 WL 670612, at *2 (N.D. Ill. Mar. 22, 2005) (“statute … contains no language requiring proof that the retaliation was for protected activity involving false claims by that same employer.”); Nguyen v. City of Cleveland, 121 F.Supp.2d 643, 649 (N.D. Ohio 2000) (finding the FCA’s retaliation provision “reaches an employer who discriminates against an employee” for reporting the false claims of a customer).  See also United States ex. rel. Bias v. Tangipahoa Parish School Bd., 816 F.3d 315 (5th Cir. 2016) (upholding claim against school board participating in Marine Jr. ROTC program where school board’s harassment and unfounded complaints led US Marine Corps to take adverse employment action against officer).

Anti-Retaliation Provision Case Examples

The cases that allow claims to be asserted against a company other than the one involved in the fraud that a whistleblower reported have stressed the need to have broad protections for whistleblowers.  As the court stated in Cestra v. Mylan, Inc., “[t]he purpose of § 3730(h) is ‘to protect persons who assist the discovery and prosecution of fraud and thus to improve the federal government’s prospects of deterring and redressing crime.’” 2015 WL 2455420, at *2 (W.D. Pa. May 22, 2015)(internal citations and quotation marks omitted). In Townsend v. Bayer Corp., the court discussed the rationale for providing protection against a different employer by addressing the employer’s motivation to retaliate if the employee reports a fraud, for example, against a major customer:

For example, an employer may lose a customer’s multi-million dollar account because an employee reports the customer’s fraudulent activities to the government. The employer clearly has motive to retaliate against its employee under those circumstances. We therefore agree with Townsend that the protections of the FCA’s anti-retaliation provisions should extend to such an employee, without requiring a showing that the employer itself was acting in concert with its customer to defraud the government, or acting in concert with the customer to orchestrate the retaliation.

774 F.3d at 460.

These cases provide much needed additional recourse for whistleblowers. Simply being able to recover back wages and related damages from an employer who fired you will be of limited use if you are essentially blacklisted from gaining employment in your field again.  As a practical matter, this might vary depending on how narrow your field of employment is.  Indeed,if your case comes to be widely regarded as  having exposed outrageous misconduct and cheating, other potential employers could applaud your initiative and public-mindedness.  It is equally likely, however, that many employers will simply not want to deal with someone who might speak out if problems are observed.

There are many instances where someone will witness fraud by an entity other than her own employer, but where the employer might react adversely once the reporting becomes known.  If the whistleblower is not given some recourse in that situation, there could well be significant issues that could not be remedied, and many useful whistleblowers would be discouraged from stepping forward.

It is free to speak with our nationally recognized whistleblower attorneys: