BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 576
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 576 (V. Manuel Pérez)
          As Amended  September 6, 2013
          Majority vote
           

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          |ASSEMBLY:  |75-3 |(May 30, 2013)  |SENATE: |38-0 |(September 12, |
          |           |     |                |        |     |2013)          |
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           Original Committee Reference:   PUB. S.  

           SUMMARY  :  Establishes a pilot program to create the "Revenue  
          Recovery and Collaborative Enforcement Team" consisting of  
          specified agencies to collaborate in combating criminal tax  
          evasion associated with the underground economy.  
           
          The Senate amendments:

           1)Delete the provision requiring the team to report on its  
            accomplishments and activities to the Legislature and to  
            participating agencies by July 1, 2015, and annually  
            thereafter.

          2)Change the participation of the Employment Development  
            Department (EDD) from an advisory capacity to a member of the  
            enforcement team.

          3)Require that the pilot program be operated using existing  
            funding of the Department of Justice (DOJ), the Franchise Tax  
            Board (FTB), the State Board of Equalization (BOE), and EDD;  
            and prohibit the team from requesting additional funding until  
            after makings its report to the Legislature.

           EXISTING LAW  : 

          1)Provides that all property is taxable unless otherwise  
            provided by the California Constitution or the laws of the  
            United States.  

          2)Establishes the BOE which administers sales and use taxes,  
            excise taxes, special taxes, and the state's fee programs.  

          3)Allows taxes on or measured by income to be imposed on  








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            persons, corporations, or other entities as prescribed by law.  
             

          4)Contains various provisions criminalizing tax evasion.  

           AS PASSED BY THE ASSEMBLY, this bill  :

          1)Made legislative findings relative to uncollected taxes in  
            California (estimated to be $9 billion annually) associated  
            mostly with underreported or unreported taxes related to  
            underground economic activities and its threat to the health  
            of the state's economy, business community, and workers.

          2)Recognized that while the Labor Enforcement Task Force and  
            Joint Enforcement Strike Force work to combat the underground  
            economy, these programs focus on labor violations and often  
            overlook criminal tax evasion.

          3)Declared legislative intent to enhance existing efforts to  
            combat criminal tax evasion associated with the underground  
            economic activities by collaboration among state entities  
            through the newly-created "Revenue Recovery and Collaborative  
            Enforcement Team" (team) by focusing on the criminal and civil  
            prosecution of those who operate in the underground economy  
            and flagrantly violate tax laws.

          4)Established the team as a pilot program.

          5)Included the FTB, DOJ, and State BOE in the team.

          6)Allowed the California Health and Human Services Agency,  
            Department of Consumer Affairs, Department of Industrial  
            Relations, Department of Insurance, Employment and Development  
            Department, and Department of Motor Vehicles to participate in  
            the pilot program in an advisory capacity to the team.

          7)Required the team to meet as needed, but at least quarterly.

          8)Required participating agencies to do all of the following to  
            combat criminal tax evasion associated with the underground  
            economy: 

             a)   Develop a plan for a central intake process and  
               organizational structure to document, review, and evaluate  
               data and complaints.  








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             b)   Evaluate the benefits of a processing center to receive  
               and analyze data, share complaints, and research leads from  
               the input of each impacted agency.

             c)   Provide participating and nonparticipating agencies with  
               investigative leads where collaboration opportunities exist  
               for felony-level criminal and civil investigations.

          9)Allowed duly authorized team members and representatives of  
            the other participating agencies to exchange intelligence,  
            data, documents, information, complaints, or lead referrals  
            for the purpose of investigating criminal tax evasion  
            associated with underground economic activities.

          10)Prohibited any member or ex-member of the team, any agent  
            employed by a member agency, or any person who has obtained  
            such knowledge from any of the above agencies or persons, from  
            divulging any information in a manner not allowed by law.   
            Information shall retain its confidential status and shall  
            remain subject to specifically enumerated confidentiality  
            statutes guiding each agency.

          11)Required the team to report on or before July 1, 2015, and  
            annually thereafter, to the Legislature and to each  
            participating agency on its activities and accomplishments. 

          12)Required the team to submit a report to the Legislature on or  
            before December 1, 2017, detailing the number of leads or  
            complaints it received, the number of cases investigated or  
            prosecuted either in civil or criminal court, and any  
            recommendations for modifying, eliminating, or continuing  
            operations of the team.

          13)Sunset the partnership on January 1, 2019, and repeals it as  
            of that date unless a later-enacted statute extends it.  

          FISCAL EFFECT  :  According to the Senate Appropriations  
          Committee:

          1)BOE, FTB, and DOJ indicate minor and absorbable costs. 

          2)Unknown future revenue gains, potentially in the low millions  
            of dollars annually (General Fund), related to the pilot  
            project's enforcement actions and increased tax collections.   








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            A portion of the revenue gains could be offset by revenue  
            losses to the extent partnership activities supplant existing  
            revenue-generating enforcement efforts among the participating  
            entities.  

          3)Significant cost pressures to hire additional administrative,  
            investigative, and enforcement staff among the participating  
            state entities upon full implementation of the Partnership  
            (General Fund).  These costs would likely be mitigated and  
            perhaps completely offset by future revenue gains resulting  
            from increased enforcement activities (See Senate  
            Appropriations Committee's staff comments).

           COMMENTS  :  According to the author, "At a time when California  
          has been reducing and in some cases eliminating funding for  
          vital public services, it is estimated the state loses up to $8  
          billion a year in tax revenue due to the effects of the state's  
          prolific underground economy, currently valued at between $60  
          and $140 billion. While the impact of the underground economy on  
          the state is extensive, the state lacks a coordinated effort  
          among its various agencies to tackle the underground economy

          "AB 576 will address the problem by establishing a California  
          Intelligence Partnership between nine state agencies to enable  
          the sharing of information and investigate leads.

          "A collaborative, strategic, targeted and focused effort to  
          combat the underground economy would create a synergy among the  
          various enforcement agencies, increasing the state's  
          effectiveness in recapturing revenue lost to businesses  
          operating illegally in the State of California.

          "As such, AB 576 will create a Centralized Intelligence  
          Partnership (CIP) between nine member agencies including the  
          Board of Equalization, the Franchise Tax Board, the Employment  
          Development Department and California Department of Justice.   
          Each duly authorized representative of the partnership would be  
          allowed to exchange intelligence, data, documents, information,  
          complaints, or lead referrals for the purpose of investigating  
          illegal, underground operations.  Information obtained by the  
          CIP would retain its confidential status and would be subject to  
          all the existing confidentiality statutes guiding each agency."

          Please see the policy committee analysis for a full discussion  
          of this bill.  








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          Analysis Prepared by  :    Sandy Uribe / PUB. S. / (916) 319-3744  
          FN: 0002669