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False Claims Expansion Efforts Continue

Several jurisdictions have passed false claims acts that permit private citizens to report tax fraud and tax avoidance. The District of Columbia may be the next to pass such a law.

A new bill in the District of Columbia City Council aims to expand the District’s False Claims Act to include tax matters. B23-35, introduced 21 January 2020, would amend the act to make it applicable to tax matters involving at least $1 million in net income, sales, or revenue, and damages of at least $350,000. Although the DC False Claims Act is already arguably applicable to the Deed Recordation Tax, it is not currently applicable to other taxes such as the Deed Transfer Tax, so the bill would mark a significant expansion.

Similar legislation passed the California State Assembly in 2019, but failed in the State Senate, and is expected to be reintroduced in 2020.

Effect of False Claims Acts

These bills, like similar laws in other states, would allow for so-called “qui tam” actions to be brought by private citizens alleging tax fraud and tax avoidance, who would collect percentages of any recovery. These efforts continue to expand even though they face significant opposition, including from state tax authorities who believe they undermine the tax enforcement system and lead to frivolous claims.

In states with such laws, now up to eight, the possibility of filing claims by private citizens has led to widespread efforts by lawyers and others to investigate likely targets and file claims. Some have been very successful, inspiring Attorneys General in other states to advocate for similar legislation. For example, Sprint Corporation last year agreed to a $330 million settlement with New York after a whistleblower brought allegations that the company had avoided millions in taxes on wireless calling plans. The California legislation is advocated by that state’s Attorney General.

Worldwide ERC® Position

Worldwide ERC®  has opposed extension of qui tam actions to tax matters, based on its experience in Florida some years ago in which multiple Relocation Management Companies were accused of avoiding millions of dollars in Florida transfer taxes through use of the blank deed process in relocation home sale transactions.  Although that matter was ultimately resolved on terms favorable to the mobility industry, the litigation costs were considerable as was the uncertainty created.  Since that time, Worldwide ERC® has included the existence of a qui tam tax provision as a factor in deciding whether to use two deeds in the several states that currently permit such actions.  Worldwide ERC® maintains a chart of information relating to the use of single vs. two deeds in the Tax and Legal MasterSource.

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How This Impacts Mobility

False claims legislation applicable to taxes could have a significant impact on use of the blank deed in relocation home sale transactions.  Worldwide ERC®  members will need to assess whether the risk of false claims by private citizens in the jurisdiction is sufficient to move from use of a blank deed to a two-deed process should such legislation pass.  That would, of course, add costs to the typical relocation home purchase program.