ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – IS AN EDD CURRENT AUDIT SETTLEMENT A GUARANTEE THAT THE EMPLOYER WILL NOT BE AUDITED IN THE FUTURE?
By Robert S. Schriebman
I believe strongly in the EDD settlement process, and the good work done by the EDD’s Settlement Office. The settlement process is available to resolve audit assessments that are pending with the CUIAB. The advantages of a settlement are many. For example, while a settlement means the employer is going to have to pay a percentage of the assessment, the employer obviously does not have to pay the entire assessment. Settlements are not reported to the IRS, and this factor alone is very attractive. The employer is required to sign a written Settlement Agreement that sets forth the terms and conditions of the settlement resolution. The Settlement Agreement also provides that at a date certain in the future, the employer must change his/her ways and treat questionable workers as W2 wage earners. A settlement means that the matter is resolved administratively, and the employer will not have the expense and trauma of appearing at a trial on the merits before an administrative law judge. If an employer does not like the terms and conditions of the Settlement Agreement, a judge trial is an available option.
I am a big believer in the settlement process because I recall a conversation, I had in a few years ago, with a friend who was an experienced trial attorney. I had a worker status case that I felt very strongly about and wanted to bring it to trial at the CUIAB. I explained the merits of my case to my friend, and he listened attentively. After I was finished with my presentation, he agreed that I had a good case in favor of the employer. But then he added, “You have a good case, but what if you get a dumb judge?” I decided to settle the case and I got a good settlement for my client.
Does a Settlement Make the Employer Audit-Proof?
Is an EDD audit settlement any guarantee that the employer will not be audited in the future? The legal answer to this question is that a settlement is no guarantee that the employer will not be audited in the future. Again, that is the legal answer. The EDD has the right to audit any employer for any open payroll tax quarter. Having said this, my experience is that a new audit, while possible, is unlikely.
I have settled more cases than I can remember. In all this time I have received only two notices from the EDD to reaudit the same employers. However, after the EDD sent the initial audit notices, the audits were never pursued. That is until now.
A former client recently called to inform me that the EDD conducted a new audit and requested the usual documentation and other information. The auditor informed the employer that the prior settlement had no impact on the EDD’s decision to conduct a second examination. The client elected to handle the new audit in-house and not hire professional representation. The employer received a Proposed Notice of Assessment covering the period of July 1, 2019 through June 30, 2022. This client was previously audited for the period of October 1, 2015 through December 31, 2021. The Settlement Agreement stated that starting January 1, 2021 all questionable workers must be treated as W2 wage earners. What about the time gap between the end of 2018 through the end of 2020?
Does the second audit prevent the EDD from conducting a second examination covering the years 2019 and 2020? I have now been brought into the case to try to unravel quite a mess! I’ll let you know the results in a future article.
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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