ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT ARE THE CONSEQUENCES WHEN YOU IGNORE AN EDD AUDIT NOTICE – PART 2
By Robert S. Schriebman
2024
Introduction
This is Part 2 of a 2-Part series. In this Part 2, I will discuss failing to respond to a possible CUIC § 1735 audit notice
Section 1735 of the Unemployment Insurance Code allows the EDD to disregard an entity such as a Corporation or LLC, to personally assess so-called responsible persons for an entity-level assessment. In other words, there are two separate assessments – one against the entity and another against the individual. The amounts of the assessment are identical – the responsible person is assessed for every dime owed by the entity.
Unlike a worker status audit of an employer conducted by an auditor, the 1735 assessment is made by an assigned EDD collector. The collector does not conduct a formal examination. Rather, the collector simply takes the entity-level assessment and goes after the human target.
Options When You Are on the Receiving End of an EDD Potential CUIC § 1735 Audit Notice
The typical 1735 audit notice informs you that you are a potential target for the assessment and that you should contact the assigned collector as soon as possible.
The strategy in dealing with a 1735 assessment is a mirror image of how things are done at the audit level. In today’s climate, ignoring an EDD audit notice is problematic. Some people can get by without being audited but the odds are not what they were during the pandemic.
The EDD sends out a ton of 1735 audit notices. My experience has told me that those who respond to a 1735 notice automatically become assessment targets. Many who do not respond skate-by free of exposure – but there are no guarantees.
If you do not respond to the notice the collector does not have much information on you and may elect not to pursue you. On the other hand, some collectors adopt a “shotgun” approach and assess everyone involved in the management of the entity.
My best recommendation if you receive a 1735 notice is to contact and retain professional representation before responding.
Conclusion
There are many articles on this website that touch and concern 1735 assessments. It is recommended that those articles be read in conjunction with this one.
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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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