• Citigroup False Claims Act Lawsuit Remanded to New York State Court for Lack of Federal Question Jurisdiction
  • January 11, 2017 | Authors: Zachary T. Atkins; Marc A. Simonetti
  • Law Firms: Sutherland Asbill & Brennan LLP - Atlanta Office; Sutherland Asbill & Brennan LLP - New York Office
  • A federal district court denied a taxpayer’s motion to dismiss a lawsuit brought under the New York False Claims Act (FCA) for lack of subject matter jurisdiction and remanded the action to state court. The relator, an Indiana University professor, alleges that Citigroup violated the FCA by deducting net operating losses on its New York franchise tax returns while knowing that it was not entitled to such deductions under the New York Tax Law. The federal government acquired a substantial interest in Citigroup under its Troubled Asset Relief Program. While IRC § 382 generally limits net operating loss carryforwards that can be deducted after an “ownership change,” the IRS issued multiple notices indicating that it would not treat such acquisitions as ownership changes. The relator claims that Citigroup underpaid its tax liability because the IRS’s notices are invalid and therefore cannot be relied upon or, alternatively, that the notices were never incorporated into the New York Tax Law. The federal district court observed that while Citigroup’s arguments for dismissal—all of which were grounded in state law—were “potentially meritorious,” the lawsuit “does not truly present a federal question.” The lawsuit calls into question the validity of the IRS’s notices but the court held that the relator lacks standing to challenge the validity of the notices. Because it could conceivably resolve the relator’s FCA claim without deciding whether the IRS’s interpretation of IRC § 382 was arbitrary and capricious, the court concluded that the relator’s complaint did not necessarily raise a federal issue and therefore remanded the case to state court. State ex rel. Rasmusen v. Citigroup, Inc.