ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – HOW TO GET A GOOD AND FAIR SETTLEMENT WITH THE EDD – PART 2 – THE SETTLEMENT PROCESS
By Robert S. Schriebman
This is Part 2 of a 2-part series in which I will discuss the settlement process.
Having recently celebrated 50 years of the practice of tax law, I look back on the many years of my representing clients in matters involving EDD audits and EDD settlements. I would like to pass on to you what I have learned about achieving a good and fair EDD settlement of an audit assessment.
I believe that in order to achieve a good and fair settlement of your EDD audit, you have to take a realistic approach to the settlement process and understand what the word “settlement” realistically means. Someone once said that a good settlement means that neither side of the controversy is truly happy! In other words the EDD doesn’t feel it properly contributed to the State Treasury, and the taxpayer-employer feels he/she has paid too much!
To you, the taxpayer-employer, the word settlement means you are going to have to shell out money that you could have used to the betterment of your business. You are not going to walk away from the audit with a freebie.
Having said the above, let’s examine the road to a good and fair EDD settlement.
Make Sure You Receive The Notice of Assessment In A Timely Manner
No settlement is possible unless and until either a timely petition is filed relating to a proposed assessment or a refund. Make sure the EDD auditor has your current address. This will avoid the Notice of Assessment (NA) being sent to an old address where you run the risk of not receiving it timely. Most assessment notices are sent by Sacramento and not by the local EDD audit office handling your audit. It is up to your auditor to make sure that Sacramento has your latest address.
Make Sure You Timely File A Petition Before the CUIAB
If you do not file a timely petition, the EDD settlement people cannot consider your matter. Don’t wait until the 30th day to file your petition. Send your petition so you can prove that it was timely sent. Consider using a private carrier such as Federal Express or UPS. If you use the Post Office send the petition via certified or priority mail and keep a receipt showing that it was timely delivered to the Post Office. Have the Post Office “round-stamp” your certified mail receipt. Track the delivery by going on the website of USPS.
Make sure to include an extra copy of the petition along with a self-addressed stamped envelope so that the CUIAB can return a conformed copy for your records, showing the petition was timely received. You will also receive a formal notification of a timely filed petition together with an official CUIAB case number.
Make Sure You Request Your Audit Files From Your Auditor
It is amazing to me how many professional representatives do not know that they can request copies of their client’s EDD audit records. The auditor is responsible for making sure the request is honored and the documentation is sent promptly. By the way, this service is free! The EDD pays the shipping and handling costs. In the files you will find important documents such as the Audit Report (AR), the auditor’s notes, and other vital information. All of this must be studied carefully before a settlement proposal is submitted.
Contact The EDD Settlement Office
After a petition is filed and you receive formal notification from the CUIAB with your official case number, contact the EDD Settlement Office and inform them that you wish to settle your matter. You will receive a Letter of Acknowledgment.
Prepare And Submit A Settlement Proposal
After you review the audit file received from your EDD auditor, you will be in a position to prepare a formal written settlement proposal. Keep it simple and make a realistic settlement offer. However, do not assume that your offer will be accepted. The Settlement Office will review your matter and they will have their own point of view on a settlement amount that will resolve your matter.
The EDD Settlement Office is a small unit and they have a very heavy caseload. The average wait time for a settlement response can be between 12-18 months. In the meantime, you do not have to pay any portion of the NA. Some smart people will make periodic payments towards an eventual settlement while the matter is pending. This is a good idea and may result in a smoother and a more comfortable payment resolution. Any overpayment will be promptly refunded after the settlement agreement is signed and submitted to the Settlement Office. Sometimes, the Attorney General Office has to approve the EDD settlement.
Read And Follow The Terms And Conditions Of our Settlement Agreement
Every settlement requires the signing of a Settlement Agreement outlining the terms and conditions of the settlement. Every agreement will require you to treat a certain class of workers as W2 wage earners at a date certain in the future.
Make Your Settlement Payment(s) Timely
Lump sum settlement payments are required within 30 days of the date you submit the settlement agreement. If you are making a lump sum payment, do so promptly. If you wish to make monthly installment payments you will have to establish this arrangement with your settlement officer. Note that under the law, there is going to be an additional 10% surcharge if you elect installments. Make sure your settlement officer explains this to you.
EDD settlements are not reported to the IRS. This factor alone is very significant. I often tell my clients to think of a settlement payment as the payment of an insurance policy premium to avoid an IRS audit based upon data contained in your EDD audit file. A settlement also means that whatever happened in the past stays in the past. An EDD settlement does not give any worker the right or ticket to seek prior employee benefits. When the settlement process is looked at through these lenses, a settlement may very well be best way to resolve your EDD tax controversy.
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 40 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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