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Employment Development Department (EDD): Personal Liability of Responsible Individuals

The IRS has the Trust Fund Recovery Penalty (formerly the 100-percent penalty). The EDD has CUIC 1735. Unlike the IRS version, the EDD asserts a full 100-percent exposure to targeted responsible individuals. In addition, a 10% nonabatable assessment penalty is also asserted. The IRS version is limited only to the employee’s share of FICA and withheld federal income taxes, roughly 60 % of the corporate employer’s overall liability.

The two key elements of CUIC 1735 are responsibility and willfulness. The EDD must have both elements before they can make the 100% assessment stick.

CUIC 1735 states that any officer, major stockholder, or other person in charge of the affairs of the corporation, or other business association, including a limited liability company, who willfully fails to pay contributions on the date on which they become delinquent, shall be personally liable for the entire amount of the contributions, withholdings, penalties, and any interest due and unpaid by the corporation or other employing unit.

Before the assessment can become final, the targeted responsible person must be given notice, an opportunity for an administrative hearing, and an appeal. If the targeted individual loses his or her administrative hearing and appeal, and does not pay within 10 days after assessment, her or she will be penalized a further 10% pursuant to CUIC 1135.