ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – EDD AUDIT ASSESSMENT REDUCTIONS ARE NOT ALWAYS FAIR TO THE EMPLOYER
By Robert S. Schriebman 2021
The great majority of EDD worker status audits result in the issuance of a Notice of Assessment (NA) to the employer. The typical NA consists of assessments for UI (Unemployment Insurance), SDI (State Disability Insurance), ETT (Employer Training Tax) and PIT (Personal Income Tax). These are known as the tax portions of the assessment. In addition, the typical NA will also assess penalties together with interest (the penalty and interest portions).
Sometimes, additional documentation and information are submitted to the auditor after the NA is issued resulting in a reduction of the original tax portions and interest portion. A Notice of Adjustment is then issued reducing the original assessment. This all sounds very right and very good – except for one thing, the penalties may remain the same. For example, a client recently received an NA in the amount of $100,000. Part of the assessment consisted of a $12,000 Negligence Penalty issued pursuant to CUIC § 1127. $60,000 of the assessment consisted of the PIT that was subsequently eliminated and a Notice of Adjustment issued. In the adjustment I noticed that the three remaining taxes – UI, SDI and ETT, totaled $17,000. The interest factor was reduced proportionately, however, the Negligence Penalty remained at $12,000! There must be a mistake. I telephoned the auditor who made the adjustment, and questioned why the full Negligence Penalty had not been reduced. I was informed that this is the way it had always been done. I was not satisfied with this response.
Realities of the Commercial World
In the commercial world, when a creditor reduces a debt, penalties and interest are readjusted to reflect the net debt. If my credit card company reduces my debt as a result of a successfully disputed charge, any accruing penalties and interest are automatically proportionately reduced. Why not the EDD?
CUIC § 13071
I expressed my concerns and chagrin to higher-ups in the EDD hoping to get an answer to the riddle. I was referred to CUIC § 13071 that basically states that while the EDD may issue credit for taxes paid, or abatement for PIT, the penalty portion is not reduced. CUIC § 13071 says “…but this section shall in no case relieve the employer from liability for any penalties or additions to the tax otherwise applicable…”
It’s not the EDD’s fault that they cannot reduce penalties. It’s the will of the Legislature.
CUIC § 13071 was enacted in 1980 and became operative July 1, 1981. Since then there has been much consumer-friendly legislation enacted in California and nationally. Not reducing a penalty when the underlining debt is also reduced is just not fair. In fact, one could say it’s a form of stealing from the employer.
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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