Don’t unleash attorneys on implementing taxes – Every day Information

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Don’t unleash attorneys on enforcing taxes – Daily News

On June 10, the Assembly approved a bill that would allow private parties to sue companies for improperly taking tax deductions.

Assembly Bill 2570 would expand the California False Claims Act to include tax enforcement. The CFCA is a whistleblower protection law that applies to false or fraudulent claims for payment or approval. The Act requires the attorney general or the local prosecuting authority to investigate violations involving state funds or local government funds, and it authorizes a civil lawsuit against the person who commits those acts by a prosecuting authority or by a private attorney.

The False Claims Act does not currently apply to claims, records or statements under the Revenue and Taxation Code. AB2570 would change that, allowing the attorney general and others to obtain confidential records related to taxes, fees and other obligations.

Attorney General Xavier Becerra has praised the proposal as providing another tool to go after “corporate cheats.” However, California already has two agencies that administer and enforce tax law, the Franchise Tax Board and the California Department of Tax and Fee Administration. AB2570 would create a role for private bounty hunters to accuse companies of cheating on their taxes, and then to participate richly in any damage awards or, more likely, coerced settlements.

This is similar to the Private Attorney General Act, a state law that authorizes private attorneys to file lawsuits to enforce labor laws, for example. A company that fails to print all the required information on a pay stub can be hit with large fines for each violation, adding up to a significant payday for the lawyers who threaten or file lawsuits over what often are simply inadvertent errors.

AB2570 would attempt to prevent litigation threats and shakedowns with a requirement that a lawsuit must be filed with the court under seal and kept under seal for 60 days. Private attorneys would be barred from bringing suit if they send demand letters to the taxpayer ahead of the expiration of the 60-day period.

Still, the possibilities for abuse of this law are endless. Tax law is complicated and frequently may be interpreted in good faith to reach different conclusions. Companies that are hit with costly lawsuits could easily be pressured into settlements to avoid the risk of an order to pay treble damages — three times the amount of the underreported tax, interest and penalties — as well as other potential civil penalties and the costs of the legal action, including attorney’s fees. Even weak or meritless claims could be quite profitable for the attorneys filing the lawsuits.

This law is unnecessary for tax enforcement. AB2570 assumes that the FTB and CDTFA are missing out on billions of dollars in tax revenue that they would be able to collect if only insiders would turn over documents and information in their possession to lawyers looking for fast cash.

The better plan is to reduce the size of government and make taxation less of a hurdle to the revenue growth and hiring that are possible when businesses succeed.

The author of AB2570 is Assemblyman Mark Stone, who unsuccessfully tried to pass a similar bill, AB1270, last year. The bill failed in the Senate.

That would be the best outcome again. The Senate should reject AB2570.