$40 Million Settlement with Bitcoin Billionaire and Company Shows the D.C. False Claims Act’s New Tax Provision has Sharp Teeth

Takeaways:

• The Office of the Attorney General for D.C. announced a $40 million settlement with Michael Saylor and MicroStrategy, Inc., marking the largest income tax recovery in D.C. history.
• The resolution arose from a qui tam lawsuit filed under the D.C. False Claims Act relating to allegations of a longstanding income tax evasion scheme.
• Unlike the Federal False Claims Act and most similar state laws, the D.C. False Claims Act allows qui tam relators to file cases involving tax evasion and, if successful, share in the recovery.

On June 3^rd, the Office of the Attorney General for the District of Columbia announced that it had settled a qui tam lawsuit filed under the D.C. False Claims Act. The $40 million resolution order amounts to the largest income tax recovery in D.C. history.

I. The 2021 Amendments to the D.C. False Claims Act

The Federal False Claims Act and most similar state law qui tam statutes exclude claims based on allegations of tax fraud. Up until 2021, the D.C. False Claims Act worked much the same way.  But that year, D.C. amended its statute to allow relators to file claims against alleged tax cheats.   D.C. is part of a growing list of jurisdictions that have enacted laws that allow for qui tam claims based on violations of tax laws. False claims acts in Delaware, Florida, Illinois, Indiana, Nevada, New York, and Rhode Island allow for such tax-related claims.

II. The Underlying Case and its Resolution

The District alleged that Michael Saylor was a D.C. resident but had, in effect, feigned residence in Virginia and Florida in order to avoid paying over $25 million in D.C. income taxes. Florida has no personal income tax, while Virginia’s personal income tax rate is lower than the D.C. rate.  The District claimed, for example, that Saylor spent far more time in D.C. than in Florida and that he had substantial real estate assets in D.C. The District asserted that Saylor’s company, MicroStrategy, Inc., was complicit in the alleged scheme.

This settlement marks the first recovery under the updated D.C. False Claims Act. And it stands as one of the largest tax recoveries under any qui tam statute.

The numbers only tell part of the story. The underlying qui tam lawsuit was filed in April 2021. The District intervened in June 2022. That is a fast turnaround for any qui tam action.  That zeal shows that the D.C. Attorney General’s Office is willing to move swiftly when presented with meritorious qui tam claims.

This may be the first big hit under the new D.C. qui tam law, but it is unlikely to be the last. The D.C. Attorney General has put out the bat signal that the District takes tax enforcement seriously.