ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – INTEREST ABATEMENT IN SALE TAX AUDITS
By Robert S. Schriebman
It does not happen very often, but interest may be reduced or removed entirely in tax audit assessments. The process is known as abatement. Most taxing agencies provide for the abatement of interest under very limited circumstances. California abatement statutes are modeled after the IRS version set forth in IRC § 6404(e). In a nutshell, interest abatement is allowed where the failure to pay the tax is due in whole or in part to an unreasonable error or delay by a governmental employee when acting in his/her official capacity in performing a ministerial or managerial act. In addition, such error or delay shall be deemed to have occur only if no significant aspect of the error or delay is attributable to an act, or failure to act, on the part of the taxpayer.
In California interest abatement rules apply to the FTB and the CDTFA. The statute for FTB interest abatement is found in R&TC § 19104. The statute for CDTFA interest abatement is found in R&TC § 6593.5. There are no interest abatement statutes for the EDD. Interest cannot be abated in an EDD assessment. Although my primary specialty involves EDD audits and related issues, I saw in Del Mar the same potential exposure for unpaid EDD taxes.
Most of the time the taxpayer must take the initiative and confront the government with their errors and request interest abatement, but one recent case involved the government notifying the taxpayer – that’s a switch!
On April 16, 2021, the Office of Tax Appeals (OTA) issued its decision in the Appeal of G. Jimenez dba El Unico, OTA Case No. 19125595. This article will discuss this case and show what is required in order to successfully seek the abatement of interest.
The El Unico Case
The El Unico (EU) case involved a sales tax audit and resulting assessment. Ms. Jimenez owned and operated a small Mexican restaurant that only provided limited outdoor seating. The CDTFA audited her for the period of October 1, 2013 through September 30, 2016 and issued an assessment which she contested. The assessment process provided for an administrative appeal as well as a settlement process. For unknown reasons this process took about 13 months longer than it should have taken. The CDTFA took the initiative and informed Ms. Jimenez that there was, on their part, an unreasonable delay. It offered to abate the substantial portion of interest providing Ms. Jimenez submitted a written statement under penalty of perjury as mandated by RT&C § 6593.5(c).
Ms. Jimenez filed a petition for review before the OTA challenging the audit and requesting a reduction in the assessment and also requesting an abatement of interest. The OTA ruled against her on her challenge to the audit and her request for an assessment reduction. However, when it came to the issue of interest abatement, the OTA upheld her request but ordered her to provide the required written statement under penalty of perjury.
Interest abatement is allowed for the IRS, FTB, and CDTFA. There are no interest abatement allowances when it comes to the EDD. The statutes for these procedures are stated above. Only the CDTFA rules require a written statement under penalty of perjury. It is important not to confuse interest abatement rules with penalty abatement rules – we are talking apples and oranges.
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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