Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York tax law.

High-Profile FCA Residency Case Settles for $40 Million
Tags: Tax Fraud
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On May 31, 2024, D.C. announced a settlement with Michael J. Saylor and his company, MicroStrategy, requiring the defendants to pay $40 million in a settlement. This settlement dismisses the action the District brought against Saylor and MicroStrategy for allegedly violating the District’s False Claims Act and Tax Code. The District alleged that Mr. Saylor unlawfully deprived our nation’s capital of tens of millions of dollars of tax revenue by fraudulently claiming to be a nonresident of Washington D.C., which imposes an income tax on its residents but does not tax nonresidents.

Mr. Saylor is the founder and former CEO of MicroStrategy, a publicly traded business analytics software company headquartered in Tysons Corner, Virginia, and the District asserted that MicroStrategy knew Mr. Saylor was a D.C. resident and helped facilitate his tax avoidance scheme. The District claimed that Mr. Saylor knowingly avoided paying income taxes he owed to the District, asserting that he was a Washington D.C. domicile or statutory resident from 2005 to 2021 without paying any income taxes or filing a return with the District during this time, and that he knowingly made and used, and caused MicroStrategy to knowingly make and use, false records and statements to do so.

Chief amongst the facts, Washington D.C. alleged in their complaint Mr. Saylor moved into and permanently occupied a penthouse on the Georgetown waterfront beginning in 2005 and subsequently performed significant renovations to the property, purchased other Washington D.C. property, and kept yachts on the Georgetown waterfront. The District pointed to multiple social media posts made by Mr. Saylor as proof that he lived in D.C. and considered it to be his home.

Rather than filing as D.C. resident during the period at issue, Mr. Saylor filed as a resident of Virginia until 2012 and then as Florida resident. The District alleged that Mr. Saylor purchased a home in Miami Beach and obtained a Florida driver’s license and voter registration as part of his scheme to fraudulently misrepresent himself as a Florida resident, while actually continuing to reside in Washington D.C. and never intending to abandon it as his home.

Furthermore, the District claimed that MicroStrategy knew Mr. Saylor was a D.C. resident during the years in question because of Mr. Saylor’s open discussion of his residency and because the company provided Mr. Saylor with company-funded transportation and security services and maintained records of his physical location. These records showed that Mr. Saylor was often in D.C. well over 200 days a year while being in Florida well under 100 days a year. Regarding the false statements and records, the District pointed to various tax and withholding forms that MicroStrategy and Mr. Saylor supposedly falsified, which indicated that Mr. Saylor was not a D.C. resident. These forms were purportedly filed under Mr. Saylor’s direction and with knowledge that they were incorrect.

The District cited these alleged facts in their action against the defendants for failing to pay taxes due and for violating the District’s false claims act, under D.C. Code § 2-381.02(a)(6), which imposes liability on any person who:

Knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the District, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the District.

Mr. Saylor and MicroStrategy denied any violation of Washington D.C.’s tax law or False Claims Act, and the settlement does not include any admission of wrongdoing on their part, rather “[t]he Parties wish to avoid the time, expense, and inconvenience of any further litigation, and to resolve any and all disputes and potential legal claims based on the Covered Conduct.” Still, the defendants paid $40 million, so chalk up a win for D.C.!

This case is another reminder that the “third rail” of tax enforcement that these FCA laws give states can be a powerful one. And enforcement actions can be brought against big corporations (see New York’s big case against Sprint) as easily as they could move against individuals for residency issues (including this example).

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