Comptroller Peter Franchot's tax fraud bill will face a hearing on Wednesday in a Senate committee. (Michael Dresser/Baltimore Sun video)
Comptroller Peter Franchot watched last year as his No. 1 legislative priority — increased enforcement powers to combat tax fraud — was killed on the final day of the General Assembly session.
This year he has a powerful new ally in Republican Gov. Larry Hogan. Hogan bolstered his bipartisan alliance with the Democratic comptroller by making Franchot's Taxpayer Protection Act part of his 2017 legislative package. Franchot has also lined up an array of backers, from Attorney General Brian E. Frosh to the trade association for the state's certified public accountants.
All that influence might not be enough, however. Franchot, who faces a hearing on the bill Wednesday in a Senate committee, has a problem.
Franchot and Senate President Thomas V. Mike Miller are not on good terms. The two sharp-tongued Democrats have for years been engaged in a bitter feud.
Franchot has frequently taken potshots at Miller, while Miller has expressed contempt for Franchot's performance as Maryland's chief tax collector, including the comptroller's office's off-the-mark estimates of state revenues and a foul-up that saw millions of dollars directed to the wrong municipalities.
"The comptroller needs to focus on doing his job, and doing it well, before he begins to exercise additional authority," Miller said last week. "Louis Goldstein never asked for these powers, and he was the most successful comptroller we've had."
Franchot might never achieve the legendary status of Goldstein, a Democrat from Calvert County who served almost 40 years before his death at 85 in 1998. Goldstein's statue now stands outside the Louis L. Goldstein Treasury Building in Annapolis.
But Franchot, who defeated former Gov. William Donald Schaefer in 2006 to become Maryland's 33rd comptroller, has now held the office longer than 31 of his predecessors. He was the only candidate on the Maryland ballot in 2014 to gather more than 1 million votes. Even Hogan didn't.
As successful as Franchot has been at the polls, when he wants permission to do something the comptroller can't do now, he has to go begging to the House and Senate.
Franchot said Tuesday that he believes last year's bill was a victim of "message-sending" by lawmakers he did not name. He said he believes the bill will pass this year because of Hogan's help and an alarming growth in tax fraud.
"Message received. If you don't like me, fine. Just protect the taxpayers of the state," he said.
The comptroller does not currently have authority to enforce state income tax laws. His field agents have investigatory and police powers to enforce Maryland's liquor, tobacco and motor fuel tax laws, but for enforcement action against income tax cheats or unscrupulous tax preparers, the comptroller has to call on the attorney general to take legal action.
Franchot is asking for authority for his own investigators to seek arrest and search warrants.
Last year, the House of Delegates voted unanimously to grant the comptroller those powers. But on the last day of the session, the Senate stripped out the enforcement provision before passing what remained on a 46-0 vote.
"At that point, the bill was basically gutted," said Anne Klase, the comptroller's legislative director. She said she never received an explanation for why the provision was removed. The two chambers didn't get around to naming a conference committee to resolve their differences before time ran out. It was a textbook example of how to kill a bill with nobody voting against it.
The comptroller testified Tuesday on behalf of this year's bill before the House Judiciary Committee, which approved it last year even while it dropped a provision extending the statute of limitations in tax fraud cases from three to six years.
Replying to Miller's criticism of his office's performance, Franchot said the office deserves credit for aggressive steps to combat tax fraud and save the state tax revenue while protecting taxpayers from preparers who steal their identities to snag their refunds
Franchot told delegates that in 2007, his office detected 314 fraudulent returns worth about $850,000 in undeserved refunds. He said that by last year, the number had grown to more than 13,000 fraudulent returns, worth $21 million. He said over the past decade, his office has saved the state $174 million by intercepting 76,000 fraudulent tax returns.
But the comptroller said that is not enough.
"The missing piece of the puzzle is bringing some of these criminals to justice," Franchot told delegates. "My experts are the only people who can put together the case."
At the House hearing, Franchot was flanked by Heidi Dudderar from Hogan's legislative office. She said the governor supports the bill because "he's very concerned about the number of cases" of potentially fraudulent tax returns that have emerged recently.
Del. Kathleen Dumais, vice chairman of Judiciary, said she foresees no problems in the House with granting broader enforcement powers.
"They made their case," the Montgomery County Democrat said. "Giving them authority to do collections and investigations is important." Dumais added, however, that the committee still may decline to extend the statute of limitations in civil cases.
Franchot made a renewed pitch for that extension Tuesday, telling the panel his office needs a time limit equivalent to the one the Internal Revenue Service has in fraud cases. His staff said the IRS often takes as much as three years to investigate complex fraud cases before handing over evidence to the states.
Besides the beefed-up enforcement powers and the statute of limitations, the legislation would give the state significant new powers to monitor fraud in tax preparation. The measure authorizes fines against tax preparers for filing fraudulent returns. It allows the attorney general's office to seek injunctions on behalf of the comptroller against rogue tax preparers. It requires that anyone who works on preparing tax returns as a business, even if employed by a tax accountant, be licensed by the Board of Tax Preparers.
Last year, the comptroller's bill was handled by the Senate Judicial Proceedings Committee, but this year it will go to the Budget & Taxation Committee because it has been revised to include issues other than enforcement.
State Sen. Bobby Zirkin, who chairs Judicial Proceedings, said Miller never spoke with him about the bill. Any perception that the Senate president intervened last year was "inaccurate," he said. The Baltimore County Democrat said his committee questioned the need to grant the comptroller more authority.
"There's always a concern when you grant additional police powers to another organization," Zirkin said. "You just can't do that willy-nilly."
State Sen. Edward J. Kasemeyer, chairman of Budget & Taxation, said his panel will consider the bill "without any consideration of any other political issues."