Tax Justice Prevails as Connecticut Sinks FCA Expansion

The BR State + Local Tax Spotlight

The Connecticut General Assembly was heading toward including taxation in the expansion of the state’s False Claims Act, Conn. Gen. Stat. § 4-274, et seq. (the “FCA”) via Senate Bill 426. Expansion of the FCA is laudable to combat fraud. Including taxation in the FCA would have been a huge policy mistake. If S.B. 426 had passed, companies and high-net-worth individuals would have fled Connecticut. S.B. 426 died in the General Assembly, hopefully not to be resurrected in its current form.

What happened? The existing FCA in Connecticut is narrow. It is limited to actions with respect to state-administered health and human services programs. S.B. 426 was drafted to simply remove the limiting language, i.e., remove the references to “a state-administered health or human services program.” Removing that limit would have made taxpayers vulnerable to claims under the FCA seeking treble damages plus the costs of investigation and prosecution, which can be brought by the Connecticut Attorney General or a person initiating the action.

Further, as Distinguished Professor Richard Pomp noted, in his individual capacity, in a letter to the General Assembly, there was a fundamental fairness flaw regarding limitations periods:

  • By eliminating the existing tax bar, S.B. 426 would extend the False Claims Act’s existing ten year statute of limitations to tax claims, which are now covered in general by a three year statute. The ten year statute means that years that are closed under the tax law would become fair game under the bill. [Letter from Richard D. Pomp, Alva P. Loiselle Professor of Law at the University of Connecticut Law School, to Connecticut Appropriations Committee (Apr. 21, 2022).]

The Connecticut AG, commented on S.B. 426 that:

  • Currently, over 100 agencies, offices and quasi-public agencies spend tax dollars on behalf of the government of the State of Connecticut. Only nine of these agencies are covered under the current Connecticut False Claims Act, leaving billions of tax dollars vulnerable to fraud and abuse. [Judiciary Committee, Joint Favorable Report, S.B. 426.]

The AG’s comment highlights another flaw in the bill. The Connecticut Department of Revenue Services (“the Department”) is charged with policing tax obligations, is staffed with competent people to do so, and should be supported in its role. If the General Assembly believes that the Department needs to increase activity and, if increased funding of the Department is necessary, then the funds should be appropriated and directed to increase the number of audits conducted by hiring and training more auditors.

With the end of S.B. 426’s attempt to remove the words “state-administered health or human services program”, the attempt to make the terms of the FCA very broad also ended. The General Assembly had previously declined to limit the impact of S.B. 426 by ignoring the Amendment offered by Senator John Kissel which provided:

  • (d) The provisions of this section shall not apply to claims, records or statements made or presented to establish, limit or reduce liability for the payment of taxes to the state or any other governmental authority.

We are pleased that tax justice prevailed and the proposed expansion of the FCA to include tax claims was shut down—for now. Please keep in touch and stay tuned as to whether the General Assembly takes another shot at expansion. For now, tax justice prevails!

This article is one in a series of articles written for the May 2022 edition of The BR State + Local Tax Spotlight.

© 2022 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.