Ask The California Employment Tax And Payroll Tax Attorney – New Rules For EDD Settlements

By Robert S. Schriebman

2023

Introduction

One of the great certainties of life is uncertainty. Another constant is change. This is especially true when it comes to the field of taxation. This is true with the IRS and it is true with the EDD.

For those of you who follow my articles, you know I am a big fan of the EDD’s settlement process. A good settlement is always better than a good lawsuit. Recently, I was informed of new rules for the EDD Settlement Office (SO). In this article I will set forth new rules and offer what insight and takeaway I can provide.

The EDD SO cannot remove any specific workers or payments from the assessments.

The EDD’s SO will not perform a surgical operation on the auditor’s work and on the Notice of Assessment. Rather, the SO will take a holistic approach based upon overall hazards of litigation if your matter is brought before a CUIAB administrative law judge for a hearing on the merits.

The EDD SO cannot remove any specific penalties.

I am a bit perplexed about this rule as I have in the past made settlement offers that included the EDD’s removal of specific penalties such as the negligence penalty pursuant to CUIC § 1127 and the interest thereon. These efforts were successful.

Prospective Reporting: The employer will need to agree to report the workers/individuals as employees that provided same services who were found to be misclassified in the audit. The prospective reporting requirement will be included in the settlement agreement if such agreement is reached.

This is a long-standing requirement and policy. Every settlement agreement I have negotiated, and I have been at this for several decades, always includes a paragraph wherein the employer agrees to treat misclassified workers as W2 wage earners at a date certain in the future.

The settlement amount needs to be paid in full within 30 days of CUIAB’s approval of the settlement agreement. If the settlement amount is not paid in full within 30 days, an additional 15% penalty pursuant to section 1135 of the CUIC will apply to the balance. Interest will continue to accrue as long as there is a balance on the account.

This rule is also long-standing and is based upon California statutes and not EDD policy. A wise employer will set aside funds at the beginning of the settlement process in order to reduce or eliminate the 15% penalty. There is nothing the SO can do to remove this rule. You should also know that interest accrues on the unpaid balance if you elect monthly payments as opposed to a lump sum. The current rate of interest is 3%.

EDD SO can offer a payment plan between 6 months to 18 months if needed.

This is self-explanatory. What if you want payments longer than 18 months? It is possible to get a longer payment arrangement providing that the employer furnishes proof of financial hardship as well as the usual financial statements.

The waiting period can be 2-4 months to get the case assigned to a settlement officer.

This rule is nuts! Most settlements are not completed until a lapse of almost one year or longer from the time the settlement proposal is submitted. Perhaps a very simple assessment situation will have a short resolution timeframe, but none that I have ever experienced.

Conclusion

My initial impression of these new rules is that only the first two offer any new insight. The rest of the rules are business as usual. Having said this, keep in mind that one of the best ways of keeping the IRS from issuing a “Me Too” assessment based on an underlying EDD audit, is to take advantage of the settlement process. Settlements are not reported to the IRS.

***

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.

Web Site Article 766