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ASK THE EDD ATTORNEY- Please Explain California's New Pilot Program To Combat Criminal Tax Evasion

by Robert S. Schriebman

The California legislature has just sent to Governor Jerry Brown A.B. 576 that will, when enacted, establish a pilot program to create a multi-agency team to combat criminal tax evasion associated with California's underground economy. Governor Brown is expected to sign the bill. When enacted, A.B. 576 will create the "Revenue Recovery and Collaborative Enforcement Team Act" which will establish a team that would consist of the following state agencies:

  • The Employment Development Department (EDD)
  • The Franchise Tax Board (FTB)
  • The Department of Justice (DOJ)
  • The State Board of Equalization (BOE)

The EDD for years has participated in its own version of an underground economy task force. The task force is composed of EDD, Department of Labor, and Worker's Compensation personnel. Team members travel together by car primarily to construction work sites where they issue citations and assessments to contractors who treat workers as independent contractors. This concept will now be expanded and become more sophisticated and deadlier to law violators.

The new legislation will require that the above agencies initially develop a plan for a central intake process and organizational structure to document, review, and evaluate data and complaints. There will be information sharing from leads brought in by members of the enforcement team. The objective of the new enforcement team will be to undertake felony-level criminal investigations that will refer violators not only to the three major taxing agencies in California but also agencies such as Department of Industrial Relations, Department of Consumer Affairs, Department of Insurance, and the California Health and Human Services Agency.

There is going to be mutual exchanges of intelligence, data, complaints, and other information that will lead to investigations for criminal tax evasion associated with underground economic activities. Over the years I have represented clients charged with employment tax violations brought about by the EDD's underground economy teams. It was rare for the EDD to issue criminal charges against violators. The EDD was more concerned with the assessment and collection of back employment and withholding taxes. On occasion the EDD would charge a violator with a civil tax fraud penalty. This penalty would not carry any criminal charges. It was a rare event for the EDD to follow through with criminal prosecution; the violations had to be extremely serious. With the enactment of the new legislation, however, things may undergo a radical change toward a criminal investigation from either the EDD or some other California agency. Only time will tell.

The new legislation will remain in effect only until January 1, 2019, and it will be repealed as of that date unless a later-enacted statute deleted or extended that sunset date.

The BOE alone estimates that sales and use tax evasion in California's underground economy deprives the state of approximately $9 billion annually. I do not think anyone really knows how much more revenue is evaded by EDD and FTB underground economy activity.

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An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.

As a trusted EDD attorney, Robert S. Schriebman has successfully dedicated more than 30 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House and the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.