Ask The California Employment Tax And Payroll Tax Attorney &Ndash; Late Breaking News ‐ Edd&Rsquo;S Audits And The Enforcement Of Ab-5

By Robert S. Schriebman

2020

Introduction

You may wish to read the preceding article, #443. In that article I explained the events leading up to the enactment of AB-5. AB-5 became effective on January 1, 2020. EDD audits covering the years 2017, 2018 and 2019 are not concerned with the impact of AB-5 and focus on the elements set forth in the Borello case.

EDD audits that commence on or after April 1, 2020, in part, will be impacted by AB-5. However, life is not normal these days. Most small businesses are shuttered. Revenue streams are down to a trickle or may have been cut off completely. The current economic conditions have caused me to contact the powers that be in Sacramento, to inquire whether or not the EDD is conducting worker status audits, and if so, will the EDD be enforcing AB-5? I was hoping for good news and a directive from the top that the enforcement of AB-5 will be put on hold or even postponed for one year to allow employers to recover from COVID-19’s impact, to allow the EDD to educate the business community on AB-5, and to send a clear signal as to when AB-5 enforcement would commence.

I finally received the official word from Sacramento on the enforcement of AB-5. Let’s see what they had to say.

The EDD’s Official Position on the Current Enforcement of AB-5

I’m going to keep the identity of my source confidential. Here is the official and latest position from the EDD on future audits and the enforcement of AB-5:

• The EDD is required to administer and enforce AB-5. It does not have the authority to postpone its enforcement. Any postponement or hiatus must come from either the State Legislature or Governor Newsom. Nothing new has been issued.
• As a result of COVID-19 and the huge amount of people seeking relief from financial hardship, the EDD has taken proactive measures including redirecting staff from non-essential functions to assist with benefit claim processing and focusing on providing benefits under unemployment insurance, state disability insurance, and paid family leave.
• Many members of the audit staff are now processing related benefit claims and attempting to ease workloads.
• Yes, there are ongoing audits and there will be new audits primarily focusing on wage verification and the identification of misclassified workers.
• The EDD has received no directives to hold off the enforcement of AB-5 beginning with audits commencing April 1, 2020 or ongoing audits that will now include at least the first quarter of 2020.

Conclusion

I was truly hoping for relief from the enforcement of AB-5. It has not come. All of these benefits now being given to worthy recipients will cost California big time. The State Treasury is going to have to be replenished perhaps with a view toward an eventual surplus. Where is the money going to come from? You guessed it – taxes, taxes, and more taxes. We can expect to see an increase in EDD audits and auditors taking aggressive positions as soon as we return to normalcy.

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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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