ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – LATE NIGHT THOUGHTS ON COVID-19 AND ITS IMPACT ON DOING BUSINESS WITH THE EDD
By Robert S. Schriebman
In my last article I gave you my personal thoughts on the EDD audit process in light of Covid-19. I discussed the fact that audits are continuing but the way audits are going to be handled will change for the foreseeable future. There is going to be a need for understanding and flexibility on the part of the EDD as well as the employer. Face-to-face audits are out. Things will be done remotely. It’s going to be more difficult for the employer to provide documentation and information. Professional tax advisors may not be able to supply required documents for audits due to the closure of offices and the reduction of staff.
In this article I would like to share with you my thoughts on the impact of AB-5 on audits taking place after March 31, 2020. I will also discuss the impact of Covid-19 on your business. Your business may have slowed down, and you may have had to let some workers go. I am concerned about personal liability if you were forced to close down your business. Finally, I will share my thoughts on auditor requests to extend the statute of limitations for examination.
My Thoughts on the Impact of AB-5
AB-5 was signed into law last September and became effective on January 1, 2020. EDD audits that will commence starting April 1, 2020, will include the first quarter of 2020. The structure of the legislation is to essentially remove and negate most arguments in favor of independent contractor status. In these uncertain economic times, many employers have ignored changing worker status to employee from independent contractor, unless the new law provided one of many statutory exemptions. Some employers have continued to treat all workers as independent contractors. It will be easy for the EDD to come down hard and make harsh assessments for the first quarter of 2020 and beyond. Time will tell. But that time is not far away. Hopefully, the EDD will adopt a policy of not enforcing AB-5 due to the harsh economic realities brought about by Covid-19 until the crisis has passed.
The EDD is currently shifting their manpower to handle new UI claims. This is going to result in a postponement of audits for the foreseeable future but no one seems to have an answer as to the impact of AB-5 when audits continue.
Business Slow-downs as a Result of Covid-19
If you are facing a business slow-down, under the current circumstances, you may be able to avoid potential layoffs by participating the EDD’s Work Sharing Program. This program allows you to retain workers by reducing their hours and wages by no more than 60% and partially offsetting the wage loss with UI benefits. This can be a two-way benefit because it helps avoid the cost associated with hiring new help. It also helps current workers keep their jobs and concurrently receive state financial support through UI benefits. Fortunately this current crisis will not last forever, but things may not be normal until the summertime.
Relief Available to Furlough or Terminated Employees
There are new rules for helping workers who have been laid off. They can draw UI benefits without the requirement that they actively seek work each week. The EDD is prepared to explain all this to workers applying for benefits. This relief primarily relates to workers who have been temporarily furloughed.
Audit Risks Associated With Closing Your Business
Closing a business in today’s environment is heart-wrenching. It is also complicated. There are all kinds of risks associated with the closure of a business. I have received many administrative law cases involving unpaid sales taxes that put at risk both seller and buyer. If a closed business is being purchased, the best advice I can give the purchaser is to obtain tax clearance certificates from both the EDD and CDTFA (sales tax folks). The state has a Rapid Response Program. Rapid Response teams will meet with you to discuss your needs, help avoid lay-offs where possible, and support your workers. For more information refer to Rapid Response Services for Businesses Fact Sheet (DE 87144RRB). You can also contact your local America’s Job Center of California for more about available Rapid Response services.
If you are involved in an ongoing EDD audit, you need to seek competent legal counsel on the risks associated with discontinuing your business. Pursuant to CUIC § 1735, and its sister, sales tax provisions, you may be exposing yourself to personal liability. You can lose both your business and your personal net worth. Do not do anything without consulting a professional.
Can’t Pay Your Payroll Taxes? – Get Help
Governor Newsom has declared a State of Emergency in California. Because of this declaration, you can request up to a 60-day extension to file your EDD quarterly return and make your payroll tax deposits without being assessed any penalties or interest. You must make a written request for this extension. Mail your request to the following address:
Employment Development Department
P.O. Box 826880
Sacramento, CA 94280-0001
Check out IRS rules for similar new extension laws.
Granting the EDD an Audit Extension
Audits that are currently in progress have stalled due to Covid-19. Auditors and management staff are working from home. We may see an unusual number of requests from auditors to grant audit statute extensions so that the audit can continue when things normalize. You are under no obligation to grant any statute extension. You are doing the auditor a favor in granting the extension. This involves a concession on your part. In light of this, you should consider seeking concessions from the auditor before granting any extension. For example, you may request that certain penalties not be assessed if you grant the extension. If the auditor refuses to make any concessions to you, consider not granting the extension.
We are all living in interesting times. The world is changing in many ways. Currently the EDD is not aggressively pursuing audits. But, this may all change when things return to normal. It is clear that California is facing new fiscal demands; the State Treasury is draining. That money will have to be made up. Revenue generated from new audits by all taxing agencies of California is going to be emphasized. Currently there are measures you can take to preserve your business and what you have. As new developments are brought to my attention, I will share them with you.
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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