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California Extends False Claims Act to Tax Fraud

Pete Scott - Jun 04 2019
Published in: Public Policy

On May 23, 2019, the California Assembly passed legislation extending the California False Claims Act to tax matters.  See A.B. 1270

The legislation was sponsored by the California Attorney General and now moves to the state Senate for consideration. 

California’s false claims act includes a “qui tam” provision that allows private citizens to bring actions on behalf of the state seeking a recovery and allowing successful such citizens to receive from 25% to 50% of any recovery, plus legal fees and costs.  That provision would extend to tax matters under the bill.

The California bill was opposed by the Council on State Taxation (COST).  COST is a trade association with some 550 major corporate members that seeks to insure the equitable and nondiscriminatory state and local taxation of multijurisdictional businesses.  It has long opposed application of false claims acts to tax suits by private parties, arguing that it robs state tax administrators of the ability to control the application of state tax statutes.  However, in California that opposition proved to be unsuccessful, at least at the Assembly level.

Worldwide ERC® has also opposed extension of qui tam actions to tax matters, based on its experience in Florida some years ago in which multiple relocation management companies (RMCs) 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.  The Worldwide ERC®  Tax and Legal MasterSource includes a chart of information relating to the use of single vs. two deeds (log-in required).

How This Impacts Mobility

Should the California bill pass the Senate and be enacted, Worldwide ERC® members will need to assess whether the risk of false claims actions by private citizens in the state is sufficient to move from use of the blank deed to a two-deed process in California.