Ask The EDD Attorney – Assessing The Risk Of Loss In An EDD Audit
By Robert S. Schriebman
2018
Introduction
Risk assessments have become part of the way business is done in today’s modern world. Big bucks are spent on the pros and cons of risks. Assessing the risk of loss when claims or lawsuits are filed. To fight or not to fight? With EDD audits it is very important for today’s employer to at least get an overall picture of what is at risk when you receive the notice that the EDD wants to audit you. Once the audit is conducted and a Notice of Assessment is issued by the EDD, there can be several levels of reaction. You may tell yourself, “I can’t fight City Hall, so I’ll just pay the assessment and move on.” Or you may have very strong feelings that you have a righteous position in treating workers as independent contractors. So, you decide that you want to take the EDD to the CUIAB and seek justice in a hearing before an administrative law judge. But, did you ever stop and evaluate the risks associated with caving in or showing the EDD who’s boss?
The purpose of this article is to briefly give you a big picture of what can happen if you lose the EDD audit battle. What do I mean by loss? I regard giving up and paying the assessment as a potential loss (unless the amount is very small.) It’s clear that if a judge rules against you, you will have lost the matter assuming that the judge’s decision is affirmed on appeal.
Potential Exposure To An EDD Audit Loss
If you as an employer feel that you cannot fight the EDD and win, think again. Most EDD audits are fact driven and are arrived at by a very human auditor taking a very human point of view. Points of view can differ. You also do not know how much time and effort the auditor put into your matter. Perhaps the auditor was under a time deadline imposed by a supervisor. That auditor may have elected to get your case off his or her desk and did not take the time to evaluate the case fully. If you feel you can’t fight City Hall, or you have an unrealistic expectation of complete vindication before a judge, you run a tremendous risk of being exposed as follows:
- Large tax liabilities, penalties, interest
- Owe back wages
- Owe labor law penalties
- Violate health and benefit plans
- Exposure to big penalties under ACA (Obamacare)
If you lose the audit or give up the battle, there are several serious levels of exposure that you have, as follows:
- ERISA – pension and other retirement plans
- Worker’s compensation
- Family and Medical Leave Act
- Health Insurance Portability Act
- Affordable Care Act (ACA) The penalties alone may bankrupt you!
- Fair Labor Standards Act – minimum wage, overtime
- Civil Rights Acts
- National Labor Relations Act
- Overtime and vacation pay
All of this exposure to risks can be so costly as to effectively put you out of business.
Conclusion
I have been practicing tax law going on 50 years. That’s a long time! I have found that over the years it usually pays to challenge a tax assessment and to conduct a risk analysis on whether to take the battle to its ultimate end or to settle your EDD matter. Let’s talk about this in another article.
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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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