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ASK THE EDD LAWYER – WHAT IS THE CUIAB’S CURRENT POLICY ON HEARING REFUND CLAIMS ON WORKER INFORMATION RETURN PENALTIES? – PART 2

By Robert S. Schriebman

2017

Introduction

This is Part 2 of a 5-Part series that will examine the fairness of the CUIAB's current position of refusing to grant an administrative hearing to any matters involving WIRPs.

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 article will discuss a taxpayer's right to procedural due process.

Before discussing the specifics of the legal issues, it will be helpful to you to once again review the facts involving a typical EDD WIRP assessment scenario

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.

XYZ Has a Right To Procedural Due Process

Due process of law, in its most fundamental state, involves giving the XYZ notice and an opportunity to be heard. XYZ has a right to a "full-dress" administrative proceeding.

A petitioner's request for procedural due process often means the level of process found in a full dress administrative hearing. The full dress administrative hearing suggests several features, including the following:

1. An impartial fact finder;

2. An opportunity to present evidence, including the calling of witnesses;

3. The opportunity to test the truthfulness of opposing testimony through the use of various techniques of the adversarial system, such as cross-examination; and

4. Representation by counsel of one's choice. Andersen v. Regents University of California (1972) 22 Cal. App. 3d 763.

Due process of law requires administrative agencies to follow certain procedures in order to protect the interests of the parties involved in administrative proceedings. The second sentence of Section 1 of the 14th Amendment states: "No state shall...deprive any person of life, liberty or property without due process of law." This amendment is the source of constitutional due process restrictions on California administrative agencies.

See Goldberg v. Kelly (1970) 397 US 254, 255, 261-264. State and local agency procedure must satisfy 14th Amendment procedural due process requirements.

The meaning of procedural due process, as required by the 14th Amendment, was aptly set forth by Justice Frankfurter in Rochin v. California (1952) 342 US 165, as follows:

These standards of justice [implicit in the due process clause] are not authoritatively formulated anywhere as tough they were specifics. Due process of law is a summarized constitutional guarantee of respect for those personal immunities which, as Mr. Justice Cardozo twice wrote for the Court, are "so rooted in the traditions and conscience of our people as to be ranked as fundamental," or are "implicit in the concept of ordered liberty."

Due process in the California Constitution is found at Article I Section 7 (a) as follows: "A person may not be deprived of life, liberty, or property without due process of law or denied equal protection of the laws..."

All administrative agencies, regardless of the method of their creation, are subject to the due process provisions of both the California and US Constitutions. See Kruger v. Wells Fargo Bank (1974) 11 Cal. 3d 352, 366-367.

The due process clauses of both constitutions protect against deprivation of certain individual rights by "state action." The action of any government entity, including an administrative agency, constitutes "state action." Here the CUIAB has adopted a policy of not allowing CUIC § 13052.5 issues, especially refund claims, to be heard by the CUIAB. This policy constitutes state action.

When a statute or administrative agency sets forth hearing procedures that do not exceed constitutional requirements, or are silent with respect to hearing requirements and procedures, the sufficiency of the procedures, or denial of them, must be evaluated using constitutional standards. See People v. Johnson (1941) 42 Cal. App. 2d Supp. 827, 833.

Under the California Constitution, the denial of a hearing is considered a deprivation of liberty. See People v. Ramirez (1979) 25 C 3d 260.

Conclusion

In the next article we will discuss whether or not the CUIAB's current position in denying XYZ administrative due process is a violation of both US and California Constitutions. 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? Will it be possible to settle WIRP matters "out of court?" 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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