Legislation will promote frivolous shakedown lawsuits

The trial lawyer bar is pushing a bill to change and expand laws to "solve" tax fraud with a vague and confusing piece of legislation that promotes frivolous shakedown lawsuits. The last thing California needs right now is another shakedown lawsuit mechanism to trap unwary businesses.

Assembly Bill 1270 (Stone) is an attempt to expand the False Claims Act to allow the attorney general, local prosecutors and private attorneys potentially to sue taxpayers for tax disputes. The problem with this legislation isn't expanded public enforcement of the law, but the bounty hunting provisions it includes for plaintiffs' lawyers.

No one condones tax fraud or abuse, but tax issues are complicated and are best left to taxing authorities to pursue enforcement and prosecution of the law. This bill would allow a gross expansion of governmental power in tax disputes and introduce plaintiffs' attorneys into tax enforcement. Plaintiffs' attorneys can sue under the bill as contractors for local prosecutors or on behalf of private citizens who sue "qui tam" in the name of the state.

There already exist two well-funded agencies that handle tax laws and fraud that fall under their purview: The California Department of Tax and Fee Administration and the Franchise Tax Board. Combined, these agencies have over a billion dollars in funding and nearly 10,000 employees.

By letting fee-seeking plaintiffs' attorneys enforce tax law, and establishing hefty penalties should litigation be pursued, AB 1270 provides a formula all too familiar in California -- a means for plaintiffs' attorneys to extort individuals and businesses into paying meritless settlements. In fact, plaintiffs' attorneys can still sue when a taxpayer has had a clean audit or settled an issue with a taxing agency.

The proponents are also selling this bill as enhancing whistleblower protections but the FCA already includes a strong Whistleblower Protection Act that provides awards for any recovery and retaliation protection from employers because of their whistleblowing. If this Act needs more funding, the state should fund that program instead of turning it over to private attorneys.

The Legislature must tread carefully when dealing with amending and expanding tax enforcement. In sum, don't let plaintiffs' attorneys undermine the good work of our robust state agencies. The Legislature should reject AB 1270. 