ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – BEWARE OF HIDDEN TRAPS WHEN NEGOTIATING EDD INSTALLMENT PAYMENT ARRANGEMENTS – PART 2
By Robert S. Schriebman
This is Part 2 of a 2-Part Series that will discuss potential hidden traps when you negotiate a monthly installment payment arrangement with your assigned EDD collector. You could be signing a confession that will allow the EDD to assess you personally in the future. You may not be able to effectively defend yourself in a CUIAB hearing to determine if you are personally liable pursuant to CUIC § 1735.
The inspiration for this article cam e about from reading an administrative sales tax decision published by The Office of Tax Appeals in the matter of Gholamrez Shafzand. The sales and use tax unit of the State of California is now known as the California Department of Tax Fee Administration (CDTFA). The Department assessed Mr. Shafzand personally for unpaid corporate level sales tax deficiencies as the responsible officer for Renzo’s Bar and Grill (Renzo). When he attempted to argue that he was not the responsible officer, the Department introduced into evidence a Responsible Person Questionnaire that Mr. Shafzand signed when he entered into an installment payment arrangement on behalf of Renzo for unpaid sales taxes. Eventually Renzo defaulted on the arrangement leaving Shafzand totally exposed. Poor Mr. Shafzand was trapped by what was essentially a prior confession.
After reading the Shafzand case it occurred to me that the EDD sets the same trap for employers seeking an installment agreement for unpaid corporate or LLC level taxes.
In this Part 2, I will discuss the potential dangerous admissions set forth in the EDD’s Corporation Information Questionnaire. I will also suggest a few defenses you may use in a hearing and will conclude the discussion by setting forth the potential benefits of electing the EDD’s settlement process.
Dangerous Potential Admissions in the Questionnaire
The EDD’s Corporate Information Questionnaire is a two-page form containing 21 questions. After answering these questions you are then instructed to sign and date it as follows: “I declare under penalty of perjury that the foregoing, to the best of my knowledge and belief, is true and correct:” The Questionnaire has now become a legal Declaration that can be used by the EDD in a hearing, or may be turned over to law enforcement in case the EDD elects to bring criminal charges against you – scary stuff!
Starting at question number 7, the Questionnaire begins to set the trap. You are asked to name the individuals responsible for the preparation of quarterly returns, and the payment of payroll taxes. You are also asked to name the person who signs checks, and decides what bills will be paid. These questions go to the first key issue of liability – who is the responsible person? The next series of questions deal with naming the individual who is responsible for day-to-day fiscal affairs within the company. Question number 19 is potentially damaging: “What business expenses (including wages, loan payments, other taxes) were paid after the liability became due?” This question goes to the second key issue of liability – willfulness. In the Shafzand case, discussed in part one, the judge held him responsible for unpaid corporate sales taxes because he authorized the payment of other business expenses such as rent, wages, and utilities when he knew Renzo had unpaid sales taxes.
After answering all the questions in the Questionnaire, and signing under penalty of perjury, you will be required to fully read CUIC § 1735 and acknowledge that you have read and understood this complex law.
The EDD now has you in a very bad spot indeed. Catch 22 is alive and well.
Potential Defenses to Personal Exposure
You want an EDD installment payment arrangement. You cannot get it without completing and signing the Questionnaire. There is no room for negotiation. The EDD has effectively put a gun to your head.
During the installment payment arrangement process you are never advised by the EDD to seek the advice of legal counsel before completing any form or signing any document.
Black’s Law Dictionary defines duress as “any illegal action, threat, or other means amounting to or tending to coerce the will of another, and actually inducing him to do and act contrary to his free will…A condition where one is induced by wrongful act or threat of another to make a contract under circumstances which deprives him of exercise of his free will.”
An installment payment arrangement is a contract between you and the EDD. You agree to pay a specific monthly sum, on or before a specific monthly date, and the EDD agrees to leave you alone. You don’t want to submit the Questionnaire, but you have no choice. If that isn’t duress, I don’t know what is.
Statute of Limitations
It is common for the EDD collector to issue a CUIC § 1735 Notice of Assessment after many or all of the payroll tax quarters have expired for assessment purposes pursuant to CUIC § 1132. This defense is always available to you even if you do not assert it in your petition. It goes to the jurisdiction of the CUIAB to hear the matter. A statute of limitations defense can be asserted at any time.
In my opinion one cannot prevail in a CUIC § 1735 assessment without having third-party witnesses who will testify on your behalf. If you try to go it alone, and argue that you were neither responsible nor willful, you have a huge uphill battle with very problematic results.
Consider the Settlement Process
Many people facing potential personal level assessments, will pay the assessment, file a claim for refund, and go through the administrative refund process without waiting for an EDD collector assessment. Either way, you should strongly consider settling you matter and manage your risk exposure without being totally assessed by an adverse judge ruling. There are several articles on this website that discuss the EDD’s settlement process.
The requirement of having to complete the Corporate Information Questionnaire is an issue for EDD management, at the highest level. This requirement should be dropped as a matter of EDD collection policy.
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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