Ask The California Employment Tax And Payroll Tax Attorney – Edd Settlements In 2024 – ‘they Ain’t What They Used To Be’ – Part 1
By Robert S. Schriebman
This is Part 1 of a 2-Part series that will take a prospective look at the EDD settlement process for 2024. The essence of any settlement is compromise. Someone once said that the best settlement results when neither side is satisfied with the results. A settlement means that the employer will have to pay the EDD some money. A settlement does not mean the employer will skate away free. The EDD will entertain a settlement when it appears that the costs and risks associated with a hearing on the merits will be more costly than the EDD wants them to be.
CUIC § 1236 allows the EDD to settle civil employment tax and disputes. The EDD will generally not consider a settlement in cases that involve fraud, intent to evade, and criminal violations. Settlements are usually limited to issues involving worker classification disputes.
The EDD Settlement Unit does a risk assessment and balances exposure to the risks of loss and the cost of litigation vs. benefits to the EDD in reaching a settlement agreement. The EDD may also consider issues of fairness, financial hardship, and the survival of the business. These are considerations but are not controlling. The controlling factor these days is whether the EDD will prevail in an ALJ hearing involving the new ABC tests pursuant to both AB5 and AB2257. 2024 will see a new and empowered EDD auditor vis a vis the EDD Settlement Unit.
This article will discuss the new standards now being used by the EDD Settlement Unit and settlement standards that will be reflected in the EDD settlement agreements that will bind the employer’s future relationship with service providers. I will also give you a roadmap to use when preparing an EDD Settlement Proposal.
New Settlement Rules for 2024
A recent email I received from the EDD’s Settlement Unit set forth settlement standards to be used in 2024 as follows:
- The employer must agree that in the future specific service providers or specific classes of providers will be treated as W2 wage earners. There is going to be a lot of uncertainty here as the gig economy expands and impacts how the employer relates to these changes. This will be one of the biggest problems with interpreting the impact of these provisions.
- Interest will continue to accrue on any outstanding unpaid settlement balance.
- The Settlement Unit will not put itself into the position of making advanced rulings on specific individuals, only classifications of workers generally.
- The EDD will not be able to remove specific penalties from the assessment. For example, the EDD will not be able to remove the negligence penalty or worker information return penalties.
- The settlement process will still take many months to resolve. If your settlement is resolved within 6 months from the time you submit a proposal, consider it greased lightning. It takes between 2 and 4 months from the time you submit the initial Settlement Proposal until the case is assigned to a Settlement Officer.
- The standard installment payment plan will remain at 18 months. If you wish a longer payout period, you will have to furnish proof of economic hardship.
- If you wish an installment payment plan, there will be an additional 15% penalty on any unpaid tax liability. This is not EDD policy; it is the law, see CUIC § 1135.
- Finalized settlements and settlement files are not available for IRS inspection to be used in an IRS “me too” assessment. If you are disappointed with an EDD settlement offer, think about the benefit of avoiding IRS exposure.
In Part 2, I will discuss the mechanics of making an EDD settlement offer and discuss some key provisions and policies applicable to finalized Settlement Agreements.
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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