Summary: A new study reveals that New York’s 2010 False Claims Acts amendment, which protects and rewards corporate tax whistleblowers, has significantly reduced tax avoidance among businesses. The law has generated an additional $281 million annually in state tax revenue, with a remarkable return on investment exceeding 3,000%.

Journal: Management Science, August 14, 2024, DOI: 10.1287/mnsc.2023.02999 | Reading time: 4 minutes

Tackling the Tax Gap

With the federal tax gap reaching a staggering $696 billion in 2022, states are searching for effective ways to ensure corporations pay their fair share. New York’s innovative approach to this challenge has caught the attention of researchers, who have uncovered compelling evidence of its success.

The state’s 2010 amendment to its False Claims Acts (FCA) offers whistleblowers up to 30% of recovered delinquent taxes while protecting them from retaliation. This approach has proven remarkably effective, as demonstrated in a recent study published in Management Science.

Measuring the Impact

Researchers from multiple universities examined hundreds of companies subject to New York’s FCA, analyzing financial data from 2005 to 2015. The results were striking. “These whistleblower laws do work, and they’re reasonably inexpensive from a government perspective,” said Aruhn Venkat, assistant professor of accounting at Texas McCombs.

The study found that companies increased their state effective tax rates by 7.1% after the law’s passage....

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