Ask The EDD Attorney – The Dangers Of An EDD Estimated Assessment
By Robert S. Schriebman
January 28, 2015
Introduction
Generally speaking, the EDD issues two types of assessments: the usual assessment is based upon actual audit documentation and information. Let us call this type of assessment an “actual” assessment. The second type of assessment is issued when the EDD does not have a complete picture and is known as an “estimated” assessment. Rarely is an estimated assessment lower than an actual assessment. Estimated assessments should be avoided.
This article will discuss how the EDD issues an estimated assessment and why this should be avoided.
Why Does The EDD Issue An Estimated Assessment?
Some people do not take any taxing agency’s inquiry seriously. Some believe that if they ignore the EDD’s probe into their business affairs the EDD will go away. Some people believe the process is a game, and the object of the game is to hide the ball, so to speak. In my career I have rarely seen these tactics pay off.
If the EDD believes that the taxpayer is generally uncooperative or is taking too long to provide the information necessary for a proper examination the EDD auditor will obtain permission from his or her supervisor to issue a Notice of Assessment based upon estimation. For example, the EDD auditor has been assigned to audit a taxpayer for three previous years. Three years equal twelve employment tax quarters. The taxpayer has only provided adequate documentation and information for only one or two quarters. The taxpayer has either become uncooperative or has totally failed to communicate with the EDD. The EDD auditor has many cases and is under pressure to complete a given audit in a specific period of time. The auditor has no choice but to get the audit off of his or her desk. Therefore, the auditor is allowed to take the data representing one or two quarters and to project that information to arrive at an assessment, based upon estimation, for the remaining eleven or twelve quarters of the audit period. In other words, the three-year audit will consist of data for twelve quarters; the majority of these quarters will be an estimated projection.
Estimated assessments are perfectly legal. The EDD was issuing estimated assessments long before the IRS began the same process. A few years ago, the U.S. Supreme Court recognized the validity of the IRS issuing an estimated assessment based upon limited available information.
Why Is An Estimated Assessment A Bad Thing?
When the EDD issues a Notice of Assessment based upon estimation the taxpayer has the same available recourse as an actual assessment. First, the taxpayer can pay the estimated assessment and file a Claim for Refund based upon actual facts and figures. Secondly, the taxpayer can challenge the estimated assessment by taking the case before the CUIAB and having it reviewed by an administrative law judge (ALJ).
This means that going before an ALJ can be both costly and risky. The judge is going to want to know why the assessment is estimated. When he or she learns that the taxpayer was not cooperative or ignored the auditor the judge is not going to be happy. I do not advise taking any estimated assessment to an ALJ for a ruling on the merits.
Settlements Are Not An Option
One avenue that is not available to the taxpayer receiving an estimated assessment is the avenue of settlement with the EDD Settlement Office. By policy, the Settlement Office refuses to consider any settlement involving an estimated assessment.
Enter The EDD Collector
An EDD estimated assessment, once it becomes final, is entitled to be collected. If the taxpayer does not pay the assessment in full promptly, the matter will be assigned to a member of the EDD Collection Division. That collector will want to be paid – now. The collector is not interested in hearing any sad story about the taxpayer’s failure to provide information or documentation. As far as the collector is concerned the deficiency had become due and payable.
Reopening An Estimated Assessment With The EDD Auditor
The EDD believes in fairness. The goal of the EDD Examination Division is to conduct an audit based upon full disclosure. You may be able to go back to your original EDD auditor and have the assessment re-determined based upon full disclosure and full cooperation. This is known as an Audit Reconsideration. If you are given this opportunity by the EDD grab on to it with both hands.
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An EDD attorney, 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 lawyer, Robert S. Schriebman has successfully dedicated more than 40 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 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.
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.
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 in addition to 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.
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