Ask The Edd Lawyer ‐ What Is The Cuiab’S Current Policy On Hearing Refund Claims On Worker Information Return Penalties? ‐ Part 1
By Robert S. Schriebman
2017
Introduction
When the EDD assesses a Worker Information Return Penalty (WIRP) on an employer, that employer is in for some tough times. WIRPs are no stranger to this website. There are several articles that discuss these penalties, and what can be done to fight back. This series of articles will discuss WIRPs from the point of view of the CUIAB.
The laws concerning WIRPs are found in CUIC §§ 13052 and 13052.5. Most of you who have followed WIRP articles on this website, know that a WIRP assessment must first be paid before it can be challenged. This series of articles will focus upon one small subsection of 13052.5 subsection (d). This subsection states as follows: “(d) Sections 1221 and 1222 of the Unemployment Insurance Code shall not apply to assessments imposed by this section.”
The current position of the CUIAB is that it is not allowed to hear a WIRP matter that has only been assessed but not paid. That position reflects the clear language of subsection (d). But wait, the current position of the CUIAB is that it is not allowed to hear a WIRP matter that has been paid and where the taxpayer-employer seeks a refund!
This series of articles will examine whether the refund position taken by the CUIAB is a constitutional interpretation of the due process clauses of the US and California Constitutions.
I will set forth a common fact situation involving a corporation’s bid to have the CUIAB hear, on the merits, its claim for WIRP refund. I will discuss whether this corporation is being treated fairly and properly under the law.
The Case of XYZ, Inc.
XYZ, Inc., (XYZ) owns and operates a widget manufacturing operation in San Diego, California.
The EDD conducted a worker status audit for the years 2014, 2015 and 2016. As a result of the audit, the EDD issued a Notice of Assessment for these years. A portion of the Notice of Assessment contained a Worker Information Return Penalty issued pursuant to CUIC § 13052.5 in the amount of $60,000.
On January 30, 2017 XYZ fully paid the CUIC § 13052.5 penalty.
On February 3, 2017 XYZ filed a timely Claim for Refund (Claim) with the EDD pursuant to CUIC §§ 1178 and 1179.
The EDD did not respond to XYZ’s Claim; the Claim was neither denied nor was the Claim granted. Pursuant to CUIC §1222, after the passage of 60 days, XYZ deemed, by operation of law, that the EDD denied its Claim.
On April 17, 2017, XYZ filed with the CUIAB its Petition to Protest the “Deemed Denial” of Claim for Refund. The CUIAB has refused to entertain or hear the Petition for Refund because its current position is that it has no jurisdiction to hear refund claim matters involving WIRPs. XYZ has been advised that it must now file an expensive and time consuming lawsuit for refund in the Superior Court.
The central issue in this series of articles is whether or not the CUIAB has jurisdiction to hear, on the merits, refund matters involving a penalty assessed pursuant to CUIC § 13052.5, or is the CUIAB precluded from doing so pursuant to the language set forth in CUIC § 13052.5(d). Said subsection states as follows: “(d) Sections 1221 and 1222 of the Unemployment Insurance Code shall not apply to assessments imposed by this section.”
Does the CUIAB Have The Legal Power to Declare CUIC § 13052.5 (d) Unconstitutional?
The CUIAB has taken the position that it does not have the power to declare a statute constitutional or unconstitutional. This is the holding in CUIAB’s precedent decision in P-T-31.
XYZ only wants the CUIAB to apply the provisions of subsection (d) in a constitutional manner consistent with the due process provisions of the 14th Amendment of the US Constitution and its counterpart in the California Constitution.
P-T-31 holds that the CUIAB cannot declare a statute unconstitutional. As that decision states:
“To declare that the clearly expressed will of the legislature is in violation of the constitution is an exercise of judicial power. Such a declaration is beyond the proper scope of administrative adjudication. We and our referees would not be observing the constitution ourselves if we attempted to adjudicate issues involving the constitutionality of legislation.”
The CUIAB, however, does have jurisdiction to determine if it is applying the will of the legislature in a constitutional manner. As stated in P-T-31:
“This, however, does not mean that we must turn a deaf ear because an issue is raised which involves the application of the constitution. It is within the proper scope of administrative adjudication to determine whether an administrative agency is applying legislation in a constitutional way. This does not involve a conflict with an express legislative will. Rather, it is a direct search for the legislative intent because we always presume that the legislature intended that its enactment should be constitutional.”
Therefore, the CUIAB does have jurisdiction to determine the constitutional application of subsection (d) and to determine if the CUIAB has jurisdiction to have jurisdiction on CUIC § 13052.5 refund claims.
CUIC § 13052.5 (d) states on its face, “Sections 1221 and 1222 of the Unemployment Insurance Code shall not apply to assessments imposed by this section.” (Emphasis added.) This section says nothing about refunds. It does not preclude the CUIAB’s jurisdiction nor does it preclude administrative due process in refund proceedings. Yet, the CUIAB has erroneously interpreted this subsection to deny jurisdiction and basic procedural due process for post-assessment matters primarily its ability to hear the merits of refund claims.
The CUIAB has voluntarily disabled itself from hearing refund claim matters and has done so when the operative statute is silent on its self-imposed prohibition. The CUIAB has not followed its own guidelines and capabilities as set forth in P-T-31.
The position taken by the CUIAB in denying refund claim jurisdiction constitutes state action and has deprived XYZ of procedural due process under both the US and California Constitutions.
Conclusion
There is currently pending Assembly Bill 1695 that seeks to eliminate subsection (d), in its entirety, from the CUIC § 13052.5. If subsection (d) is repealed will it mean that WIRP refund matters will be heard before the CUIAB? It’s too early to tell.
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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He 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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