ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – SETTLEMENT NEGOTIATIONS WITH THE EDD – TIMING IS EVERYTHING
By Robert S. Schriebman
When it comes to settling an EDD audit assessment timing is critical when it comes to approaching the EDD for a settlement. This article will discuss when to attempt a settlement and when it is too late to do so.
Settlements Before Payment of the Assessment
Administrative settlements are handled by the EDD’s Settlement Office (SO). Most settlements are negotiated before taxes, penalties and interest are paid. This procedure involves approaching the SO after a Notice of Assessment (NA) has been issued and a petition has been filed with the CUIAB. If the NA is based upon an actual audit, the SO may take jurisdiction of the matter and take your case off the CUIAB’s hearing calendar. (A settlement is not available for an estimated assessment). You’ll receive a letter informing you that the SO will order the audit files and review them for possible settlement. This letter never states that you will in fact receive a settlement offer. Your case will be assigned to a Settlement Officer who will review the matter for hazards of litigation. You may eventually be contacted with a settlement proposal. If you agree to the proposal, and pay the settlement amount in full, the SO will notify the CUIAB so that your case will eventually be dismissed because it has been settled.
During the settlement process you are welcome to make a partial payment toward an eventual settlement so that you will have a credit when it comes to determining and paying the final settlement amount.
Settlements After Payment of the Assessment
Some taxpayers prefer to pay the proposed assessment and go through the refund process. This process involves filing a claim for refund and eventually filing a refund petition with the CUIAB. Great care must be taken to file a refund claim timely. If your claim is late, no settlement may be possible.
There is a statute that states that a full payment constitutes an automatic claim for refund once a petition is filed. I prefer to file a separate written claim for refund so that I can calculate when to file my refund petition. If this creates an extra document in the Board’s files, so be it.
What if a petition has not been timely filed in response to an NA? You will have a defaulted assessment and your matter will be turned over to an EDD collector who may elect to file a Notice of State Tax Lien and to engage in enforced collection, such as a series of bank account levies. After you have fully paid the assessment, you must file a claim for refund and a refund petition as discussed above. Again, timing of your claim is critical.
By far, a great majority of audited taxpayers have no desire to fully pay the EDD without first attempting a settlement resolution.
Settlements After You Lose Your Case at the CUIAB
You have received an NA and you have timely filed a petition with the CUIAB. You have been given a hearing date and you proceed to a full hearing before an ALJ. Unfortunately, the hearing does not go your way; you lose. Is it too late to approach the SO for a possible settlement resolution? In these circumstances, the SO is not interested in settling your matter because you have a judge ruling against you. There is no risk to the EDD and no hazards of litigation. Your next step is to pay the assessment per the judge’s decision, and file a suit for refund in the Superior Court. At that point in time, you may be able to reach an out-of-court settlement with an EDD attorney who will evaluate the hazards of proceeding to trial.
It is sad that there are people out there who do not take the time to seek competent legal advice regarding settlements when they are under EDD audit or when they have received an NA. Trying to attempt a settlement after a judge ruled against you is akin to closing the barn door after the horses have escaped, or rearranging the deck chairs on the Titanic.
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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