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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 !

PART 1

By Robert S. Schriebman

Background

Mr. Jones called me with a story that was so outrageous and wrong that I felt I had to inform my readers to be on the alert as it could happened to them. Mr. Jones informed me that in 2001 he owned and operated as a small corporation as its sole executive and shareholder. The corporation failed to file its first quarter 2001 EDD payroll tax return and failed to report wages subject to payroll taxes. Mr. Jones closed the corporation at the end of June 2002. He heard nothing from the EDD between mid 2002 until late May 2014. If my math serves me right that is almost twelve (12) years.

In late May 2014, Mr. Jones received a letter from the Franchise Tax Board (FTB). The letter was entitled "Notice of Intercepted Fund." The letter informed him that a claim had been made by the EDD in an amount that allowed the EDD to take his entire California personal income tax refund. Mr. Jones called the EDD and was informed that the money was taken to cover an estimated assessment against his old corporation for failure to file and pay its 2001 first quarter payroll taxes. The EDD representative told Jones that the information was obtained on a computer screen and that it is unlikely that hard copies of any assessment documentation, or any documentation for that matter, still existed.

I asked Mr. Jones if the EDD ever issued a personal assessment against him as a responsible corporate officer pursuant to CUIC § 1735. His memory was clear - there was never such an assessment.

EDD May Have Denied Mr. Jones Basic Due Process

We learned from the above information that the EDD had taken a personal income tax refund from the FTB for a corporate-level estimated assessment without ever having given Mr. Jones basic due process. What is basic due process? Putting it simply, basic due process means that you are timely given a notice of your rights and an opportunity to be heard. If what Mr. Jones told me is true it is clear that the EDD may have acted illegally. Not only were Mr. Jones' rights violated, but the EDD most likely waited too long to attempt to assess him personally if indeed the EDD did so at all.

Statutes of Limitations

It does not matter whether we are discussing the EDD, the IRS, the FTB, or the BOE. All taxing authorities have statutes of limitations that govern when an assessment can be made. The rules that apply to the EDD are stated in the CUIC, the California Unemployment Insurance Code. That code states, in substance, that the EDD must issue an assessment based upon when an employment tax return is filed. The usual rule of thumb is that the assessment must be made within three (3) years from the time a return is filed. But wait, Mr. Jones admitted that his corporation never filed a quarterly tax return for the first quarter of 2001. In that case, the CUIC says that, in the absence of fraud, the assessment must be made within eight (8) years. Well, eight years expired in 2009. We are talking about 2014 here. It is too late for the EDD to turn back the clock and attempt to assess Mr. Jones' as a responsible person for payroll tax compliance.

What to do?

The first thing Mr. Jones must do to protect his rights and get his refund returned is to file a claim for refund. Since the EDD took his money from the FTB the refund claim should be filed against the EDD. The rules for filing a refund claim 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 (60) days of the date that the taxpayer was notified that the FTB handed over the refund amount to the EDD.

The next thing the taxpayer should do is send a letter to the EDD Taxpayer Advocate requesting a copy of all EDD records relating to the assessment against the corporation and against the individual personally.

In Part 2, we will discuss what to do if and when the EDD turns down your refund claim.

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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.