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California Bill Aimed at Tax Fraud Moves Forward

Worldwide ERC® - Jun 25 2020
Published in: Public Policy
A bill that would expand upon the California False Claims Act to protect businesses against fraud moved forward in the state Senate.

Earlier this month, a bill that would expand upon the California False Claims Act (CFCA) advanced to the Senate where it goes under consideration. AB 2570, as passed by the CA Assembly on 10 June, would expand the CFCA to allow for tax-based false claims actions to protect businesses against tax fraud.

The CFCA currently does not apply to claims, records, or statements of fraud made under the Revenue and Tax Code. This bill, which passed on a vote of 44 to 20 in the Assembly, would apply the CFCA to claims, records, or statements of fraud if certain specified conditions are met. Such conditions include: if damages pleaded in an action under the act exceed $200,000; the claim, record, or statement was made on or after 1 January 2021; and if the taxpayer in question has personal income, gross receipts, or sales exceeding $500,000 during the year the fraud was alleged.

The bill would also require a sealed qui tam plaintiff in which a whistleblower would present evidence of tax fraud to a local government entity to review for a period of 60 days. If a party is found guilty of fraud, they will owe three times the cost of the fraud plus civil penalties. The legislation is backed by Attorney General Xavier Becerra and differs from last year’s similar bill, AB 1270.

While some assembly members expressed concern that such provisions lead to a frivolous amount of fraud lawsuits that target small businesses, it was argued that amendments made in the Senate would ensure that frivolous litigation would be avoided. This is done through a requirement that government entities first consult with the appropriate tax filing authorities before intervening, while qui tam plaintiffs will need government permission to settle a case. Additionally, proponents argue that the legislation will help protect business revenue during a time of much-needed economic recovery.

How This Impacts Mobility

As businesses large and small work to adapt to a changing economic landscape and recover from the COVID-19 pandemic, initiatives aimed at protecting businesses against fraud ensure economic safety. Worldwide ERC® will continue to provide you relevant updates, and should you have any questions regarding this bill, please reach out to our Vice President of Government Affairs, Rebecca Peters at rpeters@worldwideerc.org.