California "Goes Criminal" With Revenue Recovery And Collaborative Enforcement Team

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Written by Betty Williams | Posted in North America • Tax Fraud/Evasion/Crimes • Tax Policy

California Governor Jerry Brown signed Assembly Bill 576 into law on October 7, 2013, authorizing a pilot program to create the “Revenue Recovery and Collaborative Enforcement Team” (RRCET) consisting of an alliance primarily between the California Department of Justice (DOJ), the Franchise Tax Board (FTB), the State Board of Equalization (BOE), and the Employment Development Department (EDD) in an effort to combat “criminal tax evasion associated with the underground economy.”

In addition to the agencies listed above, the following agencies may participate in the pilot program in an advisory capacity to the team:

• California Health and Human Services Agency.

• Department of Consumer Affairs.

• Department of Industrial Relations.

• Department of Insurance.

• Department of Motor Vehicles.

The bill requires a report to be filed with the Legislature by December 1, 2017, to include the number of complaints received by the team and cases investigated or prosecuted as a result of team collaboration. Of particular interest to businesses and tax professionals statewide is the following section from the legislative findings in Assembly Bill 576:

“It is the intent of the Legislature in enacting this act to focus on the criminal and civil prosecution of those who operate in the underground economy and flagrantly violate the tax laws.”

“Civil prosecution” is mentioned once in the bill. There is no explanation of how the bill’s efforts to combat crime will interface with its enforcement of civil tax matters. Practitioners should anticipate that any information shared as a result of the work of the RRCET in the area of criminal violations would be subject to referral in civil tax matters as well.

Assembly Bill 576 exemplifies the more aggressive trend by state and federal government to enforce tax compliance. Of course, the prosecution of “those who operate in the underground economy and flagrantly violate the tax laws” is certainly a worthwhile and necessary endeavor. However, too many times the well-intentioned efforts of the California taxing agencies evolve into overreaching and unjustified attempts at enforcement. Taxpayers often have legitimate differences in interpretation of the law and facts from that of the taxing agencies, which like any large institution, are prone to error. Practitioners and employers should be aware of the new law to ensure the RRCET’s well-intentioned efforts to fight criminal tax evasion do not evolve into overreaching and unjustified attempts at civil tax enforcement.”

In accordance with Circular 230 Disclosure

Betty Williams

Betty Williams has a broad range of experience handling civil and criminal tax controversy matters including income tax, employment tax, sales and use tax, property tax and IRS, FTB, and SBE audits, protests, and appeals. She has represented clients before the U.S. Tax Court and the U.S. District Courts in California. Betty has obtained penalty abatement for numerous clients ranging from a few thousand to more than $2 million in late filing and late payment penalties. She has assisted numerous clients in the United States and abroad in the 2009, 2011 and 2012 IRS and FTB voluntary disclosure initiatives. She also represents foreign financial institutions regarding Foreign Account Tax Compliance Act (FATCA) compliance. She has experience defending criminal tax matters and negotiating plea agreements in areas such as structuring, tax evasion, and the failure to file a tax return.