ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – A NOT-SO-NICE TRICK BY EDD COLLECTORS!
By Robert S. Schriebman
The job of an EDD collector is two-fold: the primary function is to collect delinquent payroll taxes from the initial employer; the secondary function is to target so-called responsible persons for individual level assessments, and then collect on those as well. All of these functions must be within the law.
Recently, a disturbing collection practice has been brought to my attention and I want to pass it along to you. This situation occurred when a collector attempted to personally assess an individual after the statute of limitations for personal assessment had expired. This was done by a combination of duress and extortion.
This article will discuss this unfortunate situation.
The Assessment of Able Corporation
Able Corporation (Able) was audited for the years 2014 through 2017. An assessment was issued. Able sought to resolve the assessment through the settlement process after filing a timely petition with the CUIAB. After an extensive review by the Settlement Office, a settlement was proposed and accepted by Able. Able agreed to pay the settlement in 12 monthly installments. After making the first installment, the pandemic hit Able hard. Able was unable to continue making payments. As a result, the settlement agreement was defaulted. When this happens, the original assessment amount becomes owing together with accrued interest.
Able’s defaulted matter was turned over to an EDD collector. In early 2022, after discussions with Able’s president, the collector agreed to an installment payment arrangement, but there were conditions. The collector sent Able a financial statement to complete, but also sent a Corporate Information Questionnaire – DE 204. This Questionnaire was not for Able to complete, but was directed at Able’s president Steve.
Here’s the problem: The Corporate Information Questionnaire is not really a questionnaire. Rather it is a not-to-subtle admission by Steve that he was the responsible person for failing to collect, truthfully account for, and pay over corporate payroll taxes to the EDD. In other words, the Questionnaire is nothing more than a confession of responsibility. This confession may be used for a personal level assessment pursuant to CUIC Sec. 1735 and may even be used in a future criminal prosecution against Steve, should the EDD elect this option.
Let’s Look at the Law
There are two statutes involved: CUIC Sec. 1735 and CUIC Sec. 1132. Section 1735 imposes personal liability against the responsible person. Steve is clearly that person. Section 1132 is the statute of limitations for making this personal level assessment. The EDD has basically three years from the time a quarterly payroll tax return is filed to make an individual level assessment pursuant to CUIC Sec. 1735; after the expiration of the statute, the EDD cannot legally assess personal liability.
What’s Really Happening Here?
It is now 2022. The statute of limitations for a personal level assessment with regard to Able’s assessment involves the years 2014 – 2017. The three-year statute of limitations for a personal assessment expired at the end of April 2020. Yet, the collector is seeking a confession from Steve in 2022. The collector will not grant a corporate level installment arrangement unless and until Steve completes and signs the Questionnaire (see below). The real issue here is whether Steve waives the statute of limitations that expired in 2020 by admitting culpability in 2022. I know of no cases where this issue has been decided.
Is this a not-so-nice trick by the EDD collector? Does the collector’s action amount to duress and/or extortion? (i.e., no corporate level installment agreement without the confession.) Is it proper for a collector to demand this confession in order to grant an agreement after the statute of limitations for personal assessment has expired?
Steve Challenges the Requirement for the Questionnaire
Steve advised the collector that he is going to seek legal advice before signing anything. In response to this, the collector stated the following:
“Please be advised than an installment agreement is an option offered by the department as a courtesy to taxpayer who cannot make payment in full on their outstanding tax liability. You were given a fair amount of time to review the Installment Agreement Form DE 927 and Corporate Information Questionnaire DE 204. In addition, you were instructed to submit both forms completed by the due date, April 15, 2022. The department may move forward with collection efforts in the event the agreed upon Installment Agreement defaults due to the absence of a completed DE 927, DE 204, and other factors.”
Are the collector’s actions in attempting to obtain a confession after the expiration of the statute of limitation for personal assessment proper? Does the threat of withholding an Installment Agreement if the Questionnaire is not signed amount to duress and/or extortion?
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 50 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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