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Pennsylvania House Passes False Claims Act Bill with Potential Impact on State Taxes and Unclaimed Property

Authors

Sebastian C. Watt, Michael Rato, Michael I. Lurie, Sara A. Lima

Key takeaways

  • HB 1697, if enacted, would allow relators to bring False Claims Act claims on behalf of the Commonwealth.
  • HB 1697 does not include any provisions that would explicitly bar relators from bringing claims relating to Pennsylvania taxes or holders’ Pennsylvania unclaimed property obligations.
  • Abusive and nuisance claims have been common in other states that have enacted False Claims Act legislation that did not include a complete bar on tax-related claims.

On July 9, 2025, the Pennsylvania House passed HB 1697, which would create a False Claims Act (“FCA”) regime patterned after the federal FCA. Although the federal FCA expressly excludes federal taxes from being the subject of FCA claims, HB 1697 does not include an express tax bar and thus arguably could apply to state taxes (without any of the safeguards enacted by states that expressly include taxes in the scope of their FCA regimes). If enacted, HB 1697 could thus pose significant risk to Pennsylvania taxpayers and open the potential for abuse by relators. HB 1697 would also increase the risk for holders of unclaimed property. HB 1697 is now proceeding to consideration by the Pennsylvania Senate.

HB 1697, which was introduced on July 2, only one week before the House passed it, would create an FCA regime for Pennsylvania that is closely patterned after the federal FCA regime. HB 1697 states that it “adopts the intent of Congress in enacting the Federal False Claims Act” and incorporates many of the FCA’s distinguishing features: liability for both affirmative and “reverse” false claims,1 private “qui tam” lawsuits brought by private parties, and potential treble damages. Despite these similarities, HB 1697 has at least one significant difference from the federal FCA: while the federal FCA expressly carves out “claims, records, or statements made under the Internal Revenue Code,”2 commonly referred to as the “tax bar,” HB 1697 contains no such provision. Thus, there could be a question over whether HB 1697’s broad statement of intent excludes tax claims from the scope of Pennsylvania’s FCA in the absence of an express tax bar provision.

If HB 1697 is enacted as-is, it could pose a significant risk to all Pennsylvania businesses due to exposure to tax and unclaimed property claims. In other states that have enacted FCA regimes that include tax claims, repeat relators abuse tax FCA claims by seeking recovery on marginal questions of tax law with the goal of squeezing businesses for settlements rather than curbing actual tax fraud.3 Additionally, including tax claims in the scope of the FCA would subject taxpayers to second-guessing by relators, who would not necessarily be bound by the results of prior audits or policy decisions made by the Department of Revenue, Treasurer, or the Attorney General.4

Furthermore, if HB 1697 does apply to tax claims, it would be more broadly applicable than other state FCA provisions. For instance, HB 1697 does not limit claims to certain types of taxes (unlike Illinois, which excludes income tax from the scope of its FCA)5 or to large taxpayers (unlike New York or the District of Columbia, which generally limit FCA tax claims to businesses or individuals with taxable income over $1 million).6 This drastically increases the risk of nuisance FCA litigation against small businesses and individuals.

HB 1697 has passed the House, and will now be considered by the Senate. We will provide further updates as this bill progresses through the Senate.

  1. Generally, a false claim in the context of the FCA is an improper request for money from the government. A “reverse” false claim is when a defendant fraudulently attempts to avoid paying money to the government. See e.g., United States ex rel. Petratos v. Genentech, Inc., 855 F.3d 481, 492 at n. 3 (3d Cir. 2017).
  2. 31 U.S.C. § 3729(d).
  3. See Michael J. Bologna, “King of Qui Tam” Runs Into Appeals Court Buzzsaw, available online.
  4. In Delaware, for example, FCA relators have staked out positions on unclaimed property requirements at odds with those of the supervising government agencies. In response, Delaware statutorily eliminated the ability for relators to bring FCA claims regarding unclaimed property and created special procedures to coordinate between the AG and the State Escheator. See Senate Substitute 1 for SB 266 clarifies proposed changes to Delaware Unclaimed Property Law. There may also be a question of whether allowing a relator to proceed with litigation on behalf of the state comports with the Pennsylvania Constitution, which provides that the Attorney General “shall be the chief law officer of the Commonwealth.” Pa. Const. Art. IV, § 4.1; see also Commonwealth v. Attorney General, 309 A.3d 265, 277 (Pa. Commw. Ct. 2024) (“[A]s a matter of public policy, any uncertainty or inconsistency about the Commonwealth’s position in separate litigations must result in deference to the Attorney General. . . . The Attorney General represents the public interests of the entire Commonwealth, including its municipalities and subdivisions. The Attorney General is the chief law officer.”).
  5. 740 ILCS 175/3(c).
  6. N.Y. State Finance Law, Art. 13, § 189.4.(a); D.C. Code § 2-381.02(d(1)(B).

Client Alert 2025-184

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