Ask The California Employment Tax And Payroll Tax Attorney – Are Edd Settlements Getting Stingy?

By Robert S. Schriebman

2023

Introduction

Webster’s Dictionary defines consternation as experiencing astonishment, amazement, or horror that confounds the faculties.  That definition may very well apply to the current EDD’s settlement program.  The EDD settlement program requires that the employer submits a proposal that sets forth an argument or arguments against the EDD’s assessment and also sets forth the risks of loss and the hazards of litigation should the matter go before an administrative law judge.  After the proposal is submitted the EDD will eventually respond by making an initial settlement offer or counteroffer to the employer’s initial offer.  It is not uncommon for the EDD’s offer to be a take-or-it-or-leave-it offer with no opportunity for further negotiations.

Over the past several months, the EDD’s response to many proposals have been disappointing.  The EDD’s initial offer to resolve the matter has been low with the demand for full payment of the UI, SDI, and PIT with only a small discount on the many penalties set forth in the Notice of Assessment.  There was even one EDD offer that refused to discount any portion of the initial assessment.  On one matter, the EDD wanted every dollar set forth in the Notice of Assessment!  No discounts allowed.  It even makes one wonder why the EDD has a Settlement Office at all.

What’s Going on at the EDD Settlement Office?

In a recent telephone conversation with a veteran Settlement Officer, I was informed that indeed, “The Times Are A-Changin” at the EDD, and not for the better as far as the employer is concerned.  Why?  The EDD’s Settlement Office does not determine the amount of the settlement offer.  This is done at the Attorney General’s (AG) level.  New management at the AG’s office is getting stingy with settlements.  They may be out of touch with the real world and are not taking into consideration that most small businesses currently being audited by the EDD, and on the receiving end of huge assessments, just can’t pay them. And they can’t pay unrealistic settlement offers coming out of the AG’s office.  Prognosis: This may lead to a substantial increase in the amount of administrative litigation that will wind up on the desks of ALJs who are already overworked with UI claims, etc. arising out of the pandemic.

Why the Stingy Settlements?

As my contact at the Settlement Office told me recently, new management at the AG’s office is not as generous as former management.  If I had to guess at their world view, I would focus on AB-5 and AB-2257.  The new ABC Test makes it much more difficult to prove that service providers are true independent contractors.  It is clear that the powers-that-be in Sacramento want every worker and service provider to be a W2 wage earner.  There are pros and cons to this debate, but I believe the real objective is increased employment tax revenue – billions more for the State Treasury.

Since the enactment of this legislation, I have had countless conversations with employers who all seem to have read AB-5.  These employers always seem to find that they fit into one of the many exemptions as expanded by AB-2257.  The employers fail to take into consideration that even if the service provider fits into an exemption, they are not out of the woods. They must still go through the many hurdles of the Borello tests.   I have had my share of employers lecture me about overcoming the ABC Test and Borello.  They have it made!  That is until I ask them if they have a written contract with the service provider – they don’t.  Virtually all of the exemptions set forth, especially in AB-2257, require a written contract between the employer and the service provider.

Conclusion

While settlement offers coming from the AG’s office seem to be low-ball offers, I believe that this climate will change for the better once the Settlement Office and the AG’s office realize that few settlements will be consummated.  This will not happen overnight.

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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 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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