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CapitolBeat
by Jason Fox
Worker Status
CalCPA Stops AB 1720 (CA False Claims Act)
T
The Legislature sent AB 5 to the
governor’s desk toward the end of the
legislative session, where it is expected to be
signed. The so-called “Dynamex” bill makes
sweeping changes related to when a worker is
classified as an employee or an independent
contractor, and will impact nearly every
business industry in California.
Codification of the New ‘ABC’ Test:
AB 5 codifies the ABC test for employee
status adopted in the CA Supreme Court’s
2018 decision in Dynamex v. Superior Court,
which set a new standard for determining
when a worker is an independent contractor.
To qualify as an independent contractor, an
employer must prove: (A) the worker is free
from control and direction of the hirer in
connection with performing the work, both
under contract and in fact; (B) the worker
performs work outside the usual course of the
hiring entity’s business; and (C) the worker
engages in an independently established
trade, occupation or business of the same
nature as the work performed for the hirer.
AB 5 also expanded the ABC test
to labor, unemployment insurance and
wage order laws, and empowers the CA
Attorney General and local government
attorneys to pursue legal action against
businesses suspected of misclassifying
independent contractors.
Select Exemptions: AB 5 exempts
many professions and occupations—including
CPAs—from the stricter ABC test and would
instead fall under the prior rules. Other
professional exemptions include physicians,
surgeons, dentists, podiatrists, veterinarians,
psychologists, lawyers, architects, engineers,
insurance brokers, securities broker-dealers,
investment advisors, real estate agents, certain
direct salespersons, commercial fishermen,
and building contractors.
AB 5 also contains a business-to-business
exemption for certain professional services,
including marketing, HR administration,
travel agents, graphic designers, grant
writers, fine artists, enrolled agents, payment
processing agents, photographers and
photojournalists, freelance writers, editors
or cartoonists, professionals providing
cosmetic services (like licensed barbers,
manicurists, estheticians), tutors and certain
tow truck drivers.
What’s Next?: Every company
doing business in California will now
need to analyze their relationships with
their workers and business vendors—and
potentially restructure operations—to
evaluate compliance under the new rules.
Misclassification of workers can result in
significant legal and tax issues.
There are significant questions about how
to comply with the new law, who is impacted
and how it will be implimented and enforced.
There will likely be additional clean-up
legislation next year, including professions
and occupations that were not carved out
in AB 5 seeking exemptions for themselves.
Additionally, there will likely be litigation that
will shape how the new law is interpreted.
Politically, many large companies that depend
on gig workers, like Uber, Lyft, Door Dash
and others may pursue a political solution
through a referendum of the new bill.
What Does the Bill Mean for
CPAs?: The fact that CPAs were carved
out from the new rules puts the profession
in a more favorable position compared to
others. Without a carve-out, the relationship
between CPAs and their clients could have
been significantly altered. However, as
businesses themselves, CPAs will need to
analyze and follow the new laws to make
sure any independent contractors they use
are appropriately classified. As advisors,
CPAs will likely be working with clients to
sort through worker classifications and the
ramifications of those decisions.
CalCPA Stops Bill Expanding the
California False Claims Act
The intent of the California False Claims
Act (FCA) is to expose corruption and fraud
by incentivizing whistleblowers to come
forward when they know of a wrongdoing.
In California, tax matters have been carved
out of the FCA because the complexity,
interpretation and application of tax law is
already overseen by tax regulators and welldeveloped
procedures.
AB 1270 would have changed that
by expanding the FCA to allow the CA
Attorney General and private attorneys to
sue taxpayers for alleged tax fraud or other
perceived tax errors.
While the anti-fraud intentions of the
legislation were well meaning, the broad
expansion of the FCA to tax matters would
have posed an additional complication for tax
practitioners and taxpayers pursuing credible
claims for refund.
With an already vigorous penalty system
in place in the tax code that incentivizes
taxpayers to take a cautious position on
their initial return, the expansion of the
FCA and the threat of litigation could put
tax practitioners and taxpayers in a difficult
position to navigate.
Moreover, under AB 1270, a taxpayer
who has already been subjected to an audit
where no issues were found or has proactively
sought guidance from a tax agency about a
particular tax position would still be open
to a costly FCA lawsuit and its aggressive
penalties.
CalCPA worked with a coalition of other
pro-business groups to raise the concerns of
such a sweeping change in tax enforcement.
The bill was successfully stopped when
it was held in the Senate Appropriations
Committee, effectively ending the issue for
this legislative session. Stopping this bill was a
positive outcome for the CPA profession and
the taxpayers they represent.
Jason Fox is CalCPA’s vice president of
government relations.You can reach him at
jason.fox@calcpa.org.
28 CALIFORNIA CPA OCTOBER 2019 www.calcpa.org
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