California lawmakers are mulling Senate Bill 799, which was introduced by Sen. Ben Allen. The bill proposes amending the California False Claims Act (CFCA) to cover tax-related claims under the Revenue and Taxation Code, according to National Law Review.

The CFCA now encourages workers, contractors or agents to report false or fraudulent claims made to the state or political subdivisions, providing protection against retaliation.

With the CFCA, civil actions could be started by the attorney general, local prosecuting authorities or qui tam plaintiffs on behalf of the state or political subdivisions. The statute also permits treble damages and civil penalties, the National Law Review explains.

Presently, tax claims are not included in CFCA's scope. SB 799 aims to change the law by being explicit in allowing tax-related false claims actions under the Revenue and Taxation Code, subject to these conditions:

• The damages pleaded in the action are more than $200,000.

• The taxable income, gross receipts or total sales of the individual or entity against whom the action is brought are more than $500,000 for every taxable year.

Furthermore, SB 799 would authorize the attorney general and prosecuting authorities to access confidential tax-related records that are needed to look into or prosecute suspected violations. This information would stay confidential, and unauthorized disclosure would be subject to existing legal penalties, National Law Review stated.

The bill is also looking to defining more broadly “prosecuting authority” to include counsel retained by a political subdivision to act on its behalf.

In the past, the federal government and most states have not included tax claims in their FCA statutes because of the tax laws' ambiguity, which can result in increased litigation and be a burden on judicial resources. Experiences in states such as New York and Illinois demonstrate the difficulties linked to expanding false claims statutes to cover tax claims.

As an example, a telecommunications firm settled a New York FCA case that involves alleged sales tax for under collection of more than $300 million, with the whistleblower getting more than $60 million. Such considerable incentives have resulted in  the rise of specialized law firms focusing on ambiguous sales tax collection obligations, causing increased litigation.

If enacted, SB 799 would require California taxpayers to evaluate their exposure under the CFCA for any positions or claim taken on tax returns. According to National Law Review, the CFCA has, importantly, a statute of limitations of up to a decade from the date of violation, which is considerably longer compared to the usual three- or four-year limitations period applicable to California tax matters.

Taxpayers might also have to reassess past tax positions to deal with possible risks coming from this extended limitations period, National Law Review says.