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ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHY AM I GETTING ALL THESE EDD QUARTERLY ASSESSMENT NOTICES? – WHAT SHOULD I DO ABOUT THEM?

By Robert S. Schriebman

2019

Introduction

I recently counseled a new client who came in with eight separate EDD assessments, each under $5,000. These assessments were numbers, "assessment #1, assessment #2, assessment #3, etc.," each assessment covered only one calendar quarter. For example, assessment #1 covered the period beginning January 1, 2018 through March 31, 2018; assessment #2 covered the period beginning April 1, 2018 through June 30, 2018; assessment #3 covered the period beginning July 1, 2018 through September 30, 2018...I am sure you get the picture.

My client did not know why she was getting all of these mini assessments and did not know what to do with them. Her solution was to simply pay each one and walk away.

Why was this happening to my client? Was her solution the best possible resolution?

In this article we will examine why the EDD sends these quarterly assessments. We will also learn what to do about them to make them go away.

Why Did My Client Receive These Quarterly EDD Mini Assessments?

These quarterly EDD mini assessments are becoming more common. In fact I see them being issued during both the audit and settlement processes. I have inquired with higher-ups in the EDD in order to bring you insights and solutions in this article.

If you have received an EDD account number, that looks like something like this: 123-4567-8, you have been issued an EDD account number. If your company fails to file quarterly payroll tax returns, the EDD by law, has the right to estimate an assessment and issue a Notice of Assessment. Notices are computer generated on a quarter-by-quarter basis. On the other hand, if you have been in business for awhile, and filed quarterly payroll tax returns, but ceased doing so, the EDD computers will issue quarterly Notices of Assessment based upon previously submitted returns. Estimates are made by the computer based upon prior submitted returns.

Case Study

Suppose that for several years you treated your workers as W2 wage earners and filed all required EDD payroll tax returns. Suppose further that one day you decided to treat workers as independent contractors and stopped filing EDD quarterly and annual payroll tax returns. The computer starts searching for missing returns and when it does not find them, issues estimated assessment on a quarter by quarter basis.

The above explains why quarterly assessments or mini assessments are issued.

What Should You Do When You Receive These Quarterly Mini Assessments?

These annoying quarterly estimated mini assessments must be taken very seriously - just like the larger versions issued at the completion of formal EDD audits. A timely petition must be filed with the CUIAB. You do not have to file a separate petition for each mini Notice of Assessment. You may file one petition and include all the mini assessments in one petition. A petition must be filed within 30 days from the date each Notice was issued (30 days from the mailing date is OK). If you fail to timely file a petition, you will have a defaulted assessment(s) that will be subject to collection and assigned to an EDD collector. If you are not careful, you will find your bank account levied without notice and a State Tax Lien recorded against you as well - serious stuff!

How Do You Stop These Mini Assessments From Being Issued

You were sent the series of EDD assessments because the EDD had no recent record of filing quarterly returns. Your job is to file those returns with the EDD as soon as possible. If you truly had W2 wage earners, but did not file quarterly returns, these returns must be accurately prepared, filed and paid (including all appropriate penalties and interest).

Don't forget to sign and date each return before sending it. The returns may have to be filed electronically.

If you did not have W2 wage earners, but hired the services of independent contractors, you still must file quarterly returns with "zeros" set forth throughout the return. These are known as "zero returns" and are accepted by the EDD for compliance purposes.

Don't forget to sign and date each return before sending it. The returns may have to be filed electronically.

You May Be Audited

Filing late returns, especially "zero" returns, may trigger an EDD audit. So, you may be caught between a rock and a hard place. Unfortunately, this is the risk you are subjected to when you do not file timely quarterly returns.

Should You Just Pay The EDD And Walk Away?

Many people believe that you "cannot fight City Hall." The client sitting in front of me, who brought in all these assessments, was of the opinion that she should pay the estimated assessments and be done with it. But all of these assessments, including penalties and interest, can amount to big bucks. Paying the assessments and walking away is not going to stop the EDD computer from issuing more of them. Paying the assessments is not going to minimize the risk of being audited.

I have found that preparing and filing "zero" returns will remove the original assessments and stop the EDD computer from issuing more of them. I have also found that undergoing a formal audit usually results in an overall lower assessment. Because the new assessment is based upon an actual audit, a timely petition should be filed with the CUIAB and the matter resolved through the settlement process.

The settlement process may result in the removal of penalties and related interest even if the underlying tax portion of the assessment is sustained. There is usually always something to be gained through working with the EDD's Settlement Unit.

Conclusion

EDD computers generate these quarterly estimated mini Notices of Assessments. A timely petition is essential for resolving these assessments. Late quarterly and annual EDD returns must be filed in order to remove or adjust downward these computer generated assessments. Filing of these returns may expose you to an EDD audit, but the overall results of the audit may be less than the assessments generated by the EDD computer. Eventually an overall resolution may be achieved through settlement negotiations. Never pay full price for EDD estimated mini assessments.

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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. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

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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