N.Y. AG announces court decision to uphold $300 million tax fraud lawsuit against Sprint-Nextel

NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman announced a court decision Tuesday that denied Sprint-Nextel Corporation's efforts to dismiss a $300 million tax fraud lawsuit.

Manhattan Supreme Court Justice O. Peter Sherwood ruled that Sprint's sales tax practices were not consistent with New York Tax Law and that Schneiderman presented enough enough evidence of alleged fraud for the cause to move forward. Schneiderman filed a lawsuit in April 2012 that alleged Sprint failed to collect and pay sales tax to New York taxing authorities on approximately one quarter of its receipts for its flat-rate charges for wireless calling plans since 2005.

The lawsuit seeks to recoup three times the more than $100 million in taxes Sprint allegedly owes to local and state governments.

"On behalf of responsible taxpayers, local governments and businesses in New York state, I am very pleased with today's decision, which clears the way for my office to hold Sprint accountable for its avoidance of over a hundred million dollars in taxes it knowingly evaded," Schneiderman said. "As the very first tax case prosecuted under the False Claims Act - which rewards and protects whistleblowers - this ruling sends a message that tax dodgers will be exposed and prosecuted to the fullest extent of the law."

Sprint argued part of its flat-rate plan was non-taxable and it did not collect or pay sales taxes on that part. The court ruled the law does not permit such an approach. The court also rejected Sprint's arguments that Schneiderman's complaint failed to allege that Sprint had knowledge of its alleged legal violation.

Companies in violation of the False Claims Act are subject to triple damages, in addition to mandatory civil penalties. The Sprint case started as a whistleblower suit, in which Schneiderman intervened.