ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – EDD AUDITOR INTERVIEW QUESTIONS FOR CORPORATIONS AND LLCS
By Robert S. Schriebman
Most EDD auditors begin the examination process by conducting an initial employer interview. Each auditor will have his/her own list of basic questions that begin the audit process. No two auditors will ask the same exact questions, but there are common threads. While these questions are, for the most part, straightforward, several have hidden traps for the unwary and may be part of an auditor’s agenda that will eventually guide his/her search for information. I recently attended a client interview where the following questions seemed to be a representative sample of typical interview questions. In this article I will present these questions and alert you to potential trouble spots that may cause the auditor to probe deeper with a view towards eventually issuing a Notice of Assessment.
Basic Auditor’s Interview Questions for Corporations and LLCs
- When was the corporation or LLC formed? (This question may seem straightforward, but may lead to a dual assessment of the entity and the individual shareholders. This especially occurs in the construction industry where auditors seem to want to go back as far as 8 years.)
- In what state was the Corporation or LLC formed?
- What is the corporation or LLC’s identification number? (This is usually found on the Articles of Incorporation.) Auditors sometimes use this information to find out historically the identities of officers and shareholders for purposes of individual level assessments.
- What are the hours of operation?
- What is the current business address?
- Does the corporation or LLC have more than one place of business?
- What are the names of the officers? This question is important for potentially issuing individual level assessments pursuant to CUIC § 1735.
- What services are performed by the officers? Here the auditor may want to determine who was in control of the day-to-day fiscal affairs of the entity.
- Does the corporation or LLC own or control any other businesses? This is a tricky question designed to determine if all the entities are going to be audited during the audit process. This is known as a horizontal examination.
- What services are performed by the employees other than corporate officers? Here it is important not to go into great detail describing each and every job. It’s best to keep your answer vague and brief such as, “management and administration.” Most auditors are satisfied with this response. Giving the auditor too much information will allow a comparison between the services provided by employees and those provided by independent contractors. If the services overlap, the auditor may want to reclassify the contractors as employees.
- Does the corporation or LLC contract with anyone for personal services whom you do not consider to be an employee? What kind of services do they provide? This may be the most important question of all. It sets the framework for a standard worker status audit. From this point the auditor will prepare a list of documentation and information relating to both employees and those performing outside services.
While the above list of questions is not exhaustive, it will give you a general idea of what the auditor is looking for and basic auditor hidden agendas.
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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