Ask The California Employment Tax And Payroll Tax Attorney – New EDD Settlement Policies And Procedures
By Robert S. Schriebman
If you have perused the articles on this website, and maybe even read a few, you can’t miss the fact that I am a big fan of resolving tax disputes with the EDD through its settlement process. Many factors go into the decision to pursue a settlement in leu of a full blown ALJ hearing. Factors such as the hazards of litigation, risk assessment, and the cost of litigation usually point favorably toward attempting a settlement. The EDD settlement procedures and policies do not preclude you from a hearing on the merits in the event that you and the EDD cannot reach a mutual settlement resolution.
First and foremost, a settlement always means you are going to have to pay the EDD something. Someone once said that a good settlement means that no side is happy with the settlement results. This is a good maxim. EDD settlements also have the positive aspect that the resolution is not available to the IRS for any type of piggy-back, “me too” assessment. Even if you do not like the settlement terms, consider the settlement payment as if it was the payment of an insurance premium to keep the IRS out of your life.
Another maxim of the settlement process has traditionally been that the net worth of the taxpayer-employer has never been a factor in determining the amount of settlement. That is up until now. There are new policies and procedures involved in the settlement process that appear on the surface to be generated by our current COVID-19 pandemic.
This article will discuss new settlement policies and procedures currently in effect in the EDD settlement process.
New COVID-19 Settlement Policies and Procedures
Traditionally, settlements that are over $100,000 must be reviewed and approved by the Attorney General’s Office. Counter offers proposed by the taxpayer-employer, or their representative, must also be so approved. These days settlements of $100,000 or more must now be approved by the Executive Director of the EDD.
Traditionally, if the taxpayer-employer wants to make monthly installment payments that are longer than 12 months, financial documentation such as a financial statement and bank statements were required. This policy is still in effect.
So, what has changed? New policies and procedures now require extensive financial disclosures for counteroffers. Personally, I see no purpose or relevance in the production of financial disclosures during the settlement process. No settlement should be based upon financial statements, bank statements or tax returns. This is no longer the case.
Required Financial Disclosures
Here is what is happening now.
You have submitted a settlement proposal. It has been reviewed by your assigned Settlement Officer and you have received the EDD’s offer for settlement. If you accept the offer as presented and are willing to pay the offer amount in a lump sum, end of discussion. The EDD will be happy to take your money. If on the other hand, you make a counter offer for a smaller amount, you will be asked to produce the following financial disclosures:
• A Profit and Loss Statement for the preceding year.
• A Profit and Loss Statement for the current year to a date certain.
• A current Balance Sheet showing assets, liabilities and net worth.
• 4-6 months of bank statements for all business bank accounts.
• The most current federal income tax return
In the past this documentation was never required.
COVID-19 Impact Statement
In addition to the above financial disclosures, you will also be required to produce a written statement as how the COVID-19 pandemic has impacted your business. There is no set format. Having said this, however, there are certain points that you should make in your statement. For example, if you are a minority-owned business, make that very clear. If your business is down from the same time last year, explain the decline and how it has impacted your cash flow, your ability to pay your bills and to retain your workforce.
While it is my personal opinion that the EDD has no business looking into your finances and ability to pay, we all must dance to the tune currently being played by EDD management. Hopefully when the pandemic is over, and we return to normalcy, these current policies will be withdrawn.
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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