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Plaintiffs’ Lawyers Descend as DC Considers False Claims Act Expansion Again!

The D.C. Council is once again preparing to consider legislation (B23-0035; the False Claims Amendment Act of 2019) that would authorize tax-based false claims actions, allowing private, profit-motivated parties to bring punitive civil enforcement lawsuits—a practice that is prohibited under current law consistent with the vast majority of other states with similar laws.

The Committee of the Whole is expected to consider the bill at its committee mark-up meeting on Tuesday, January 21, and we understand that it will closely resemble the bill that was introduced early last year, which in turn closely resembles prior iterations of the legislative proposal (e.g., the False Claims Amendment Act of 2013, the False Claims Amendment Act of 2016 and the False Claims Amendment Act of 2017).

Most taxpayers and their advisors understand just how problematic this proposal is. As we have seen in jurisdictions like New York and Illinois, opening the door (even a crack) to tax-related false claims can lead to significant headaches for taxpayers and usurp the authority of the state tax agency by involving the state Attorney General in tax enforcement decisions. One Chicago-based law firm has filed over a thousand qui tam actions under the Illinois statute. Few of these cases involve internal whistleblowers, actual fraud or reckless disregard of clear law. Instead, the cases usually involve inadvertent errors or good-faith interpretations of murky tax law. Many of the defendants accused of improperly administering provisions of Illinois’s sales and use tax law even proactively sought guidance from and were audited by the tax authority.

Summary of the Proposal

The bill would amend the existing false claims act in the District of Columbia (D.C. Code Ann. § 2-381.01 et seq.) to expressly authorize tax-related false claims actions against a person so long as they “reported net income, sales, or revenue totaling $1 million or more in a tax filing to which that claim, record, or statement pertained, and the damages pleaded in the action total $350,000 or more.” Because the current false claims statute includes a bright-line tax claim prohibition (consistent with a majority of jurisdictions with similar laws), this bill would represent a major policy departure in the District. See D.C. Code § 2-381.02(d) (stating that “[t]his section shall not apply to claims, records, or statements made pursuant to those portions of Title 47 that refer or relate to taxation”).

Unlike the typical three to six year statute of limitations for tax audits and enforcement, the statute of limitations for false claims to be alleged is 10 years after the date on which the violation occurs. See D.C. Code § 2-381.05(a). Additionally, treble damages would be authorized against taxpayers for violations, meaning District taxpayers would be liable for three times the amount of any damages sustained by the District (including tax, interest and penalties). See D.C. Code § 2-381.02(a). A private party who files a successful claim may receive between 15–25 percent of any recovery to the District if the District’s AG intervenes in the matter. However, if the [...]

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QHTC You Later: DC Bids Farewell to Historic QHTC Certification Process

The District of Columbia (DC) Office of Tax & Revenue (OTR) implemented sweeping changes to the Qualified High Technology Company (QHTC) certification process this year. As you may remember, beginning last year, OTR implemented a new online QHTC self-certification process for companies to obtain exempt purchase certificates. This year, OTR is expanding the scope of this online self-certification requirement to all QHTC benefits—including exempt sales as a QHTC and other non-sales tax benefits available to a QHTC (summarized here). This change was accomplished through amendments to the QHTC certification regulation (DC Mun. Regs. tit. 9, § 1101) that were proposed by OTR in November 2018 and became final on January 4, 2019. The changes apply to all tax returns due on or after January 1, 2019.

So What Changed?

Historically, the relevant OTR regulation provided that to claim a credit or other benefit, a QHTC was required to attach a form prescribed by OTR (i.e., Form QHTC-CERT) to each applicable tax return or claim for refund. See DC Mun. Regs. tit. 9, § 1101 (prior to Jan. 4, 2019). Effective January 4, 2019 with the finalization of the amended regulation, this procedure now requires every QHTC to submit a Self-Certification request online via MyTax.DC.gov on an annual basis and obtain a “certificate of benefits” letter from OTR each year. No tax exemptions or benefits will be allowed without a valid certificate of benefits letter that is obtained prior to or concurrently with the filing of a return on which the benefits are claimed. Thus, to claim QHTC benefits on a monthly sales tax return for January 2019, the certificate of benefits will need to be requested from OTR for review/processing prior to the upcoming mid-February return deadline. Unlike the procedure in the past, the certificate of benefits letter obtained online will be deemed to attach to any tax return due and filed during the period for which the certificate is valid and unexpired. The certificate of benefits is expected to be valid for one (1) calendar year from the date it is issued/approved by OTR. Unlike prior years, the new regulation requires all benefits applications filed by a QHTC to include all of the following information:

  1. Taxpayer ID Number
  2. Name
  3. Address
  4. Sales Tax Account Number
  5. NAICS Code
  6. Information demonstrating QHTC eligibility (including attaching proof of DC office location, such as a current lease agreement)
  7. First year certified as QHTC
  8. Explanation of principal business activity
  9. Amount of QHTC Exempt Sales/Purchases from the prior year (broken down by period)
  10. Number of QHTC employees hired
  11. Number of QHTC employees hired who are District residents
  12. Schedules detailing QHTC employee credits
  13. Number of QHTC jobs created in the past year
  14. Gross revenue
  15. Gross revenue earned from QHTC activities in the District

Practice Note: Companies that have historically claimed one or more of the tax benefits available to QHTCs and wish to continue to do so in 2019 need to carefully review [...]

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