California legislators looking to expand False Claims Act to tax fraud

California Assembly Bill 1270 was introduced on February 21, 2019. If it becomes law, it would amend the state’s False Claims Act to remove the bar against tax-related false claims.

The bill, as introduced, would expressly authorize tax-related false claims actions against a person or company whose reported taxable income, net income, or sales totaled $500,000 or more in connection with the claim, and the alleged damages total $200,000 or more.

Though it provides greater exposure to would-be tax-fraudsters, the bill still protects the taxpayer’s confidential information by:

authoriz[ing] the Attorney General or the prosecuting authority, but not the qui tam plaintiff, to obtain otherwise confidential records relating to taxes, fees, or other obligations under the Revenue and Taxation Code. The bill would prohibit the disclosure of federal tax information to the Attorney General or the prosecuting authority without authorization from the Internal Revenue Service.

AB 1270

The current California False Claims Act allows individuals to report fraud against any state or local government and if successful, the government is permitted to impose treble damages, including attorneys’ fees and a civil penalty of between $5,500 and $11,000 for each and every violation. At the moment, the state’s False Claims Act does not apply to claims made under the Revenue and Taxation Code.

Removing the tax bar would be great news for potential whistleblowers and all California taxpayers. New York, one of only two other states along with Illinois that expressly allows for similar actions, has been very successful in returning hundreds of millions of dollars to the government.

For example, in December 2018, the New York AG announced a $330 million qui tam settlement with Sprint stemming from allegations that the company did not properly pay state sales tax.

In addition to allowing tax whistleblowers to come forward, AB 1270 also expands the definition of “prosecuting authority” to include “counsel retained by a political subdivision to act on its behalf.” This will help protect the government fisc by allowing specialized whistleblower law firms to prosecute tax claims on behalf of the government.

We will track the bill’s journey through the legistlative process and will report back if it becomes law.

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