ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT ARE THE CONSEQUENCES WHEN YOU IGNORE AN EDD AUDIT NOTICE – PART 1

 

By Robert S. Schriebman

2024

Intrduction

This is Part 1 of a 2-Part series.  In this Part 1, I will discuss the options available when you are on the receiving end of an EDD audit notice.  In Part 2, I will discuss failing to respond to a possible CUIC § 1735 audit notice.

Options When You Are on the Receiving End of an EDD Audit Notice

How do you know if you are being audited by the EDD for a worker status audit?  There are a series of basic documents telling you of a pending EDD audit notice.  These documents are as follows:

• Inquiry Concerning Records
• Pre-Audit Questionnaire
• Form 996D – A List of Required Records

When you are in the receipt of these documents you are a target for an EDD audit. If you respond to the audit notice by completing the Pre-Audit Questionnaire and sending in the required documentation, your matter will be assigned to an EDD auditor, and you will undergo an examination process which may result in the issuance of the following:

• Proposed Notice of Assessment, followed shortly by
• The final Notice of Assessment.

The final Notice of Assessment will be sent to you by certified mail.  You have 30 days from the date of mailing to file a petition with the CUIAB.

Consequences of Ignoring an EDD Audit Notice

During the COVID-19 pandemic the EDD continued to send out notices for audits.  Many businesses were closed or no longer operating.  Several of our clients, hanging on by their economic fingernails, chose to ignore the audit notice.  In those days, auditors were working from home and rarely came into their assigned field offices.  As a result, very few audits actually occurred and many of those who elected to ignore the audit notice were never audited.  Some were audited two or three years after the initial audit notice was issued.

We are now in 2024. What are the consequences of ignoring an audit notice in today’s climate?  EDD auditors are now at their desks and the EDD has hired many new auditors.  The odds of getting away with not responding to an audit notice is not what it was during the pandemic.  The chances of not being audited are slim.

Those who elect not to respond to an EDD audit notice in 2024 and beyond, run the risk of receiving an estimated assessment.  The EDD will try to communicate with a non-responding employer two or three times, finally giving the employer 10 days to furnish books and records.  If the employer fails to acknowledge or respond to an audit notice, the EDD may issue an estimated assessment.

Dealing with an Estimated Assessment

The EDD will issue an assessment based upon its own estimation and projection of a deficiency in employment and withholding taxes.  A final Notice of Assessment based on an estimation must still be petitioned to the CUIAB within 30 days.  An estimated assessment cannot be settled.  If you fail to timely file a petition, the estimated assessment becomes final and is subject to collection.

The EDD has historically adopted a policy that an employer receiving an estimated assessment is allowed to contact the audit office and supply the necessary documentation and information to allow the EDD to issue an assessment based upon an actual audit.  This process may require the EDD to issue a Notice of Adjustment either reducing or increasing the original estimation.

Conclusion

In Part 2, I will discuss failing to respond to a possible CUIC § 1735 audit notice.

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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.

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