California "Goes Criminal" with the Revenue Recovery and Collaborative Enforcement Team

On October 7, 2013, Governor Jerry Brown signed Assembly Bill 576 into law, 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."

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