ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – DODGING THE BIG BULLET – THE EDD’S IMPROPER USE OF THE CORPORATE INFORMATION QUESTIONNAIRE – PART 1
By Robert S. Schriebman
This is Part 1 of a 2 Part series.
There are many articles on this website that discuss personal exposure for unpaid corporation or LLC payroll taxes. The IRS has the Trust Fund Recovery Penalty (TFRP) found at IRC § 6672. The EDD’s version is found at CUIC § 1735. The common thread that runs through both sections is that the assigned collector investigates who is the responsible target and issues the personal-level assessment. The IRS does a more thorough investigation. The EDD collector on the other hand, sits back and waits for the target to step into a trap for the unwary. The collector sends the target a Corporate Information Questionnaire to complete and return. As soon as the Questionnaire is completed and returned to the collector, the targeted individual has done all the collector’s work. All the collector need do is issue the personal level Notice of Assessment. As will be discussed shortly this Questionnaire is the trap!
Personal liability comes about when any person required to collect, truthfully account for, and pay over corporate or LLC employment and withholding taxes fails to do so.
Both the IRS and the EDD personal payroll assessments are part of the collection process – that’s how it has been – until very recently.
Enter the EDD Auditor
Traditionally, the EDD auditor conducts a worker status examination and then issues a Notice of Assessment. An Audit Report (AR) is also generated. The last portion of the AR is a short checklist of potential targets of the 1735 assessment should the collector eventually elect to pursue the matter if the assessment is not paid in full by the employer. The auditor traditionally is no longer involved – but wait – things are changing.
“The Times They Are A’Changin”
A few weeks ago, I was retained to represent an employer for an EDD audit. The auditor sent an email introducing herself, asked the usual questions, but attached a Corporate Information Questionnaire for my client to complete during the initial stage of the audit. I informed the auditor that the Questionnaire is traditionally part of the collection process and is only required if an assessment has been made but has not been paid. The Questionnaire has no part in the audit process. In response, the auditor informed me that EDD upper management now requires that the Questionnaire be completed during the audit process.
Corporate Information Questionnaire – The Big Bullet
The Questionnaire is used by the EDD to target responsible persons for a personal level assessment for unpaid corporate or LLC payroll taxes. A personal level assessment generates a tax lien against the targeted individual and subjects him/her to enforced collection action, damaged credit rating, wage garnishment, and incumbers real estate such as a personal residence. It is also a signed confession and can be used in a court of law for potential criminal prosecution. It is the genesis of much potential misery!
Let’s take a look at why the Questionnaire is so potentially dangerous.
Here are a few questions taken from the Questionnaire:
- Whose signature was on the payroll checks?
- Whose signature was on the business checks?
- Who had the final word as to what bills would be paid?
- What business expenses (including wages, loan payments, other taxes) were paid after the liability became due?
- Were you aware of the quarterly tax returns/deposits reporting requirements?
After answering the Questionnaire’s 22 questions, CUIC § 1735 is set forth verbatim and you are required to state that you have read and understand it. You are also required to sign the Questionnaire under penalty of perjury. You have signed now what is in essence a confession. You cannot argue after the fact that you did not understand what you were signing. Even though the Questionnaire may be used in a criminal prosecution against you, there are no traditional Miranda warnings.
The EDD is now demanding that you complete and sign the Questionnaire at the very beginning of the audit process. There has not been a completed audit and there has not been an assessment.
In Part 2, I will discuss how I attacked the EDD’s premature demand for this Questionnaire and how I worked with the Taxpayer Advocate to stop this practice in its tracks!
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.
Web Site Article 665