ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – EDD’S 1735 LETTER – A TRAP FOR THE UNWARY
By Robert S. Schriebman
There are several articles on this website that discuss the EDD’s CUIC § 1735 assessment dealing in depth with this statute.
A Brief Refresher
CUIC §1735 seeks to hold individuals personally liable for corporation or LLC deficiencies. Simply put, any person required to collect, account for, or pay over EDD employment and withholding taxes faces personal exposure for every dime owed by the entity. In other words, the EDD has the right to disregard the corporate of LLC entity and assess one personally responsible and collect from that targeted individual. The EDD will seek out the so-called responsible person and issue a Notice of Assessment to the target. Once targeted the individual has the same appeal rights that the entity would have if assessed at the entity level. This includes a hearing before the CUIAB with an administrative law judge.
When Is 1735 Applicable?
If a corporation or an LLC files payroll tax returns but does not pay the self-assessment in full, or upon audit the EDD determines payroll taxes are owed, this generates a deficiency or an amount receivable on the books of the EDD. If the deficiency is not paid in whole or in part, the EDD has the right, under the law, to seek full payment from targeted responsible persons. The collection of a deficiency is the responsibility of an EDD Collector. The Collector makes the determination to go after the so-called responsible person. This is when CUIC § 1735 comes into play.
The EDD Wants You
EDD Collectors are assigned the task of determining who is a responsible person and issuing an assessment. I recently received a call from a potentially targeted individual. She informed me that she has just received a letter from the EDD stating the following:
- The EDD is conducting an investigation into the affairs of X Corp. “Our initial investigation shows that you held the position of President with that corporation.”
- Section 1735 of the CUIC provides that any person having charge of the affairs of a corporate, association, limited liability partnership, or LLC, who willfully fails to pay the required tax contributions or withholdings shall be personally liable for the amounts due, plus applicable penalty and interest charges.
- The liability at issue is $51,000 covering the period of April 1, 2019 through March 31,2022.
- If payment in full is not received, the EDD will continue its investigation, which may result in a Notice of Assessment being issued holding you personally liable for the amount due.
- Please complete the enclosed Corporate Information Questionnaire.
- Please contact EDD Collector to discuss the matter or remit payment in full not later than July 25, 2022.
The name of the collector and contact information is stated at the bottom of this letter.
What are your options should you be on the receiving end of a 1735 letter?
- If you have the funds, you can remit payment in full for the entity’s debt. This will be the end of the matter. You will no longer face personal exposure.
- You can contact the collector to negotiate an installment payment arrangement for the entity. However, this option will require you to complete the Corporation Information Questionnaire, and you will still face personal exposure.
- You can ignore the letter and not respond. The EDD sends out many of these letters. In my experience I have found that those who respond, face certain personal exposure and assessment. This is a trap for the unwary.
If you receive a 1735 letter, contact an experienced attorney before considering any of the above options.
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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