Ask The Edd Lawyer- Do I Have Personal Exposure To Unpaid Corporate Edd Employment And Withholding Taxes? Part III

by Robert S. Schriebman

This is Part III of a three-part series discussing your potential of personal liability for unpaid corporate level EDD employment and withholding taxes. We see this happen frequently, almost routinely, when a corporation fails to pay EDD or IRS employment and withholding taxes.

In Part I we examined the points of view of both the IRS and EDD. Basically, they both look at the twin factors of responsibility and willfulness. We also learned that while the IRS only assesses about 60% of the corporate liability against the responsible individual, the EDD assesses a full 100% exposure. While the EDD amount may be relatively smaller compared to the IRS, the percentage rate is much higher.

In Part II we asked and answered key concerns that the EDD will investigate should they feel you are a possible target for personal assessment of unpaid corporate EDD payroll taxes. For example, “Do you handle the day-to-day fiscal affairs of the corporation?” and “Is your signature on the bank signature card?”

In Part III we will look at the so called “responsibility test.” You can take this test to see whether you pass or fail.

Our test questions will come directly from the official EDD source, “The Corporate Information Questionnaire.” If you answer is “ME” to most of these questions you best seek the advice of experienced legal counsel. You could be facing not only an individual-level EDD assessment but criminal exposure as well. Willfully failing to withhold and pay over payroll taxes may be a felony. Anything you say to the EDD, without advice of counsel, can and will be used against you.

• Who prepared the Quarterly Tax Returns/ Deposits?
• Who signed Returns/Deposits?
• Who signed Payroll Checks?
• Who signed Business Checks?
• Who had the final word as to what bills would be paid?
• Who was the signator(s) on the account(s)?
• Number of signatures required?
• Who managed and directed operations?
• Who hired/fired employees?
• Who supervised the employees?
• Who negotiated contract/business transactions?
• Who negotiated and guaranteed loans?

 

The EDD will also ask you for bank information. The EDD will want to know the name of your bank, account numbers, and branch location. The purpose of this question is to obtain information for the issuance of a subpoena for bank records especially copies of bank signature cards to determine who had the ability to sign checks. Normally a bank signature card, standing alone, will not provide sufficient evidence of payroll tax responsibility. However, we recently had a case in this office where the EDD did in fact assess our client for corporate payroll taxes based on the bank signature card alone. We were able to have the case dismissed, but it still took considerable effort and professional fees to accomplish this result.

The EDD will also want to know whether the targeted individual received any corporate funds, assets, wages, or loan repayments after the EDD corporate payroll tax deficiency arose. One can not drain the resources of a corporation rendering it unable to meet its payroll tax obligations. Any individual viewed by the EDD as draining corporate assets may be assessed under a transferee liability theory.

 

©Robert Schriebman 2013.

An EDD attorney, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angles County serving clients throughout California and the United States. As a trusted EDD lawyer, Robert Schriebman 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 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.