ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – MORE REASONS FAVORING EDD SETTLEMENTS
By Robert S. Schriebman 2020
If you are on the receiving end of an EDD Notice of Assessment, you should consider resolving your matter through the EDD’s settlement process. I am a big fan of the settlement process and I make no bones about it. There are many articles on this website that discuss the merits of the settlement process. Let’s review a few of the traditional benefits of a settlement:
- Time: Most clients wish for prompt closure of their EDD matter. They would rather pay in full and move on. They feel that they are in a helpless and hopeless situation. Afterall, you can’t fight City Hall, can you? CUIAB judge hearings on the merits can take several years before you get your day in court. I encourage these clients to consider paying the EDD less money through the settlement process. A settlement usually takes a little over one year to resolve. You are not bothered by a collector during this process. In the current pandemic environment, there are fewer audits and fewer settlements. The Settlement Unit is chipping away at their backlog. They have hired more people and settlements are being resolved quicker than ever.
- Costs: A CUIAB judge hearing is very much like a court trial – a bit more informal, but still there are witnesses, cross examinations, and briefs that should be filed. If you want professional representation, its going to cost you. Competent representation is never cheap. A settlement on the other hand, does not involve the typical trial preparation work. Professional fees are relatively smaller.
- Uncertain Results: I’m reminded of a lunch meeting I had with my childhood friend, an outstanding and highly experienced trial lawyer. I had a good case to take before the CUIAB on a worker status matter. I went over the case with my friend and expressed to him my confidence in winning my case. He looked me straight in the eyes and replied that he agreed with the merits of my matter, but added, “what if you get the wrong judge, or an inexperienced judge?” I chose to go for the settlement instead of the hearing.
- No IRS Involvement: Adverse CUIAB decisions, or full payment of EDD assessments, without contesting the matter, create files that are available to the IRS in the event the IRS wishes to conduct their own audit and issues their own assessments. On the other hand, EDD settlement files and resolutions are not available to the IRS for review. This factor alone makes settlements very attractive.
- No Admission of Wrong Doing: Every settlement process is resolved with the signing of a Settlement Agreement. The Agreement provides the terms of payment and the employer’s promise to treat certain misclassified workers as employees at a date certain in the future. There are no admissions of wrongdoing by the employer. The typical settlement language is as follows: “By executing this Settlement Agreement, the parties do not make any admissions concerning the validity of the assessment and/or the status of the types of workers at issue.”
The above language is important because a settlement does not create additional rights in misclassified workers to pursue any administrative or legal actions against the employer.
Additional Reasons Favoring Settlements
Here are some additional reasons why I favor the settlement process:
- Reduced Interest Rates on Installment Payments: Settlements can be payable in installments. The usual timeframe is 18 months or less. The EDD does charge interest on the unpaid balance. Starting January 1, 2021, the rate of interest will fall from 6% to 3%. This is a 50% reduction!
- No Tax Liens: If you receive an assessment notice and you do not file a petition, you will have to pay the EDD promptly. If you fail to pay the bill in full, the EDD collector will file A Notice of State Tax Lien. On the other hand, if you make installment payments on an EDD settlement, no lien will be filed so long as you are making the settlement payments. Upon signing the Settlement Agreement, the EDD will notify its Collection Division to hold off on the filing of any lien. You will continue to receive a Statement of Account, periodically, but no lien will be filed on the unpaid balance.
If you default on your agreement, and do not pay the balance you agreed to pay, you have breached your contract. Your agreement will be terminated and you will be given a bill for the original amount stated in the Notice of Assessment, plus accruing interest. At that point in time, the EDD will file alien notice.
I am a strong believer of resolving controversaries by settlement. If you elect to go through the settlement process, but you do not like the settlement proposed by the EDD, you are still welcome to pursue a full judge hearing before the CUIAB.
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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