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ASK THE EDD LAWYER- WHAT CAN YOU DO IF YOUR EDD OR IRS AUDIT IS TAKING TOO LONG?

By Robert S. Schriebman

We handle many audits here in the office. They are mostly EDD and IRS audits of individuals and corporations. Over the past couple of years I have noticed a disturbing trend. Both EDD and IRS audits seem to drag on forever. It seems that there are more audits going on these days then there were five years ago. Audits are also becoming more intrusive. For example, the IRS now requires a "tour" of the taxpayer's business. The IRS auditor literally makes the appointment to travel to the taxpayer's business where an unofficial "deposition" takes place. My clients are asked all kinds of questions about their line of work. What products are being manufactured and how are they being distributed. I find myself always on guard to protect my client from disclosing trade secrets and other confidential information.

The EDD seems to be following the example set by the IRS. Every EDD auditor wants to have a face-to-face meeting with the taxpayer. I try to do whatever I can to prevent this from happening and to remind the EDD auditor that his or her purpose is to focus on employment tax issues. However, EDD auditors continue to press for documentation and information concerning income tax matters. We have to inform them, in no uncertain terms, that their job relates to employment tax matters only.

It is not uncommon for both EDD and IRS audits to drag on for one year or more. What these auditors seem to forget or ignore is that interest is compounding daily on any ultimate deficiency. This can become very expensive.

Each and every EDD and IRS audit is governed by its own statute of limitations. Audits must be completed within a specific time frame from the date returns are filed. When auditors get close to this date they ask for extensions on the statute of limitations for examination. Taxpayers as well as professional advisors such as CPAs and attorneys forget that granting extensions are not mandatory. It is a matter of taxpayer grace. Whenever the IRS sends requests for statute extension it is accompanied by an official IRS publication telling you that granting the extension is voluntary on your part. Many an audit and underlying secret criminal investigation have collapsed by the refusal to grant a statute extension.

The EDD does not have an official publication that informs the taxpayer that he or she does not have to grant a statute extension. Clients have informed me that EDD auditors aggressively press them for statute extensions without one word to the fact that the extension does not have to be granted. It is, however, a difficult thing to say no to a statute extension for fear of a harsher audit result. This is a myth.

What can you do if you feel the audit has been going on too long, and you want to end it all? You can call the auditor and find out their projected date for completing the audit. If the auditor is vague ask to speak with his or her supervisor. Other than that, the best thing to do is to try to guesstimate what the projected assessment might be and send in a payment toward the deficiency. Not only will this reduce the "hit," it will stop the daily running of interest on that part of the assessment represented by your payment. This is not a simple as it sounds. If you pay too much on your IRS audit you could lose your right to challenge the IRS in the U.S. Tax Court. It is always better to pay a bit less than a bit more.

Congress, too, has become concerned about how much time the IRS is taking with audits. House lawmakers passed legislation on February 25 that would rein in the power of the IRS to audit taxpayers. Lawmakers passed by voice vote the Taxpayer Transparency and Efficient Audit Bill (HR 2530), a measure that would require the IRS to conclude any audit of an individual's tax return within one year after its start. The bill, introduced by Rep. Peter Roskam, R-Ill., would require that, if an audit takes more than one year, the IRS must send the taxpayer a letter explaining the delay. Roskam said the legislation was introduced in response to the ongoing controversy surrounding the Service's delay of applications filed by conservative social welfare groups who sought tax-exempt status under Code Sec. 501(c)(4).

The House also passed by voice vote the Protecting Taxpayers from Intrusive IRS Requests Bill (HR 2531), a bill to prohibit the Service from requesting that taxpayers provide information regarding their religious, political or social beliefs. In order for the Service to make exceptions to the prohibition, it would have to provide a report that includes the question in the form it will be asked, describes the class of taxpayers to be questioned and the circumstances requiring the exception. The legislation was also introduced by Roskam. Both pieces of legislation were offered as part of the GOP's "Stop Government Abuse Week" and are designed to protect Americans from excess scrutiny by the IRS, Roskam said.

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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.