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ASK THE LAWYER – WHAT SHOULD I DO WHEN THE EDD TAKES MY FTB PERSONAL INCOME TAX REFUND FOR A CORPORATE EDD OLD DEBT? PART 2

By Robert S. Schriebman

This is Part 2 of a 3-part article discussing what to do when the EDD takes your refund from another taxing agency such as the FTB or the BOE. In Part 1, I discussed what happened with our client Mr. Jones when the EDD took his FTB refund. This is a disturbing situation. We are receiving calls from very upset people explaining that the EDD is attempting to collect very old tax debts that go back as far as the early 1990s. People are receiving telephone calls from EDD collectors as well as a letter titled "Statement of Account" demanding immediate payment for ancient tax debts going back longer than twenty years. Neither the taxpayer nor the EDD have any hard copies of records relating to how this debt originated. The EDD only has a computer entry, and this is what the collector is basing his or her demand.

In a typical case a taxpayer receives a letter from the Franchise Tax Board titled "Notice of Intercepted Fund." The letter informs the taxpayer that a claim has been made by the EDD in an amount that allowed the EDD to take all or a part of the taxpayer's personal or business income tax refund through the collection arm of the FTB.

Please review the case of Mr. Jones discussed in Part 1 to get a background of information that will help you and give you perspective when reading Part 2.

A Brief Review of the EDD Statute of Limitations for the Collection of Deficiencies

Unlike the FTB that has a twenty year statute of limitations for collections, the EDD has no time limit other than provisions in the California Constitution prohibiting collection of government owed deficiencies after thirty years. In other words, if you owe the EDD for an early 1990s deficiency the statue of limitations is still open.

What To Do

The first thing to do is to determine whether the EDD debt is legally owed. For example, if you were recently audited and an assessment resulted from the audit that you did not protest by filing a petition, the debt should be paid. If you cannot pay it in full you should make arrangements with an EDD collector to pay it in installments. There are new and liberal installment payment arrangements that the EDD collector will explain to you. If you can pay the deficiency in full and get it out of your life, by all means do so.

If you believe that you do not owe the EDD I suggest you get a professional opinion to confirm your belief. There may be a way to challenge the deficiency administratively without having to pay it first.

If your legal advisor confirms that you in fact do not owe the EDD, but you have allowed your administrative appeal rights to lapse, you will have to pay the deficiency in full and file a timely refund claim.

The rules for filing a refund claim with the EDD are set forth in CUIC § 1178. There is no special form for filing the claim. The refund claim should state the following items as a minimum:

  • Taxpayer's name and address
  • Taxpayer's social security number
  • The amount of the claim
  • The reason for the claim
  • A copy of the FTB notice should be attached to the claim
  • The claim should be signed by the taxpayer and have all personal contact information

The claim must be filed within sixty days of the date that the taxpayer was notified that the FTB handed over the refund amount to the EDD.

Once a refund claim is filed with the EDD, the EDD can either expressly reject your claim in writing or simply do nothing. If the EDD does not expressly reject your claim it is deemed rejected after sixty days from the date it was filed with the EDD. This brings up an important point. When you send your claim to the EDD make certain that you have proof that it was timely sent. Using a carrier such as Federal Express or sending the claim by certified or registered mail with return receipt requested, provides the necessary proof as to timeliness. Also make sure that the Post Office "round stamps" your receipt to show when you sent it.

Administrative procedures demand that upon express rejection or a "deemed rejection" you must file for an appeal with the CUIAB (CUIC §§ 1222, 1241). A "deemed rejection" means that you have not heard anything from the EDD within sixty days from the date you filed your claim. Your claim is deemed rejected by operation of law giving you the right to appeal that rejection.

After a taxpayer files a refund-rejection appeal to the CUIAB, the CUIAB has ninety (90) days to rule on the appeal. If the CUIAB fails to rule within that time period, the taxpayer has the option of either waiting for a refund hearing before the CUIAB or filing a suit for refund in the Superior Court. However, any taxpayer wishing to litigate an EDD dispute in the Superior Court must first exhaust all administrative remedies.

In Part 3, I will give you my thoughts and recommendations on what to do when the EDD is demanding that you pay big money for a relatively small ancient debt, yet the EDD has no proof and no documentation to justify its claim against you.

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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, 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.