ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT TO DO WHEN THE EDD AUDITOR SHOWS UP AT YOUR BUSINESS WITHOUT AN APPOINTMENT?
By Robert S. Schriebman
It happens to the best of us, the line of communication breaks down. The EDD auditor shows up at your doorstep, without an appointment, and demands to review your books and records and to conduct a lengthy entrance interview with you and your staff. The background behind this situation usually goes something like this.
You received an EDD audit notice entitled “Inquiry Concerning Records.” This was accompanied by a two-page Pre-Audit Questionnaire and a one-page form listing a litany of books and records the EDD wants you to believe are required for the audit. You telephoned the person whose name appeared on the “Inquiry” and an appointment was made to commence the examination at your place of business. You may have forgotten the appointment date on your calendar, or your auditor may have mistakenly entered the wrong date and time for the appointment.’
The real questions are as follows:
- Must you drop everything and meet with the auditor who showed up at your doorstep?
- Can you postpone the meeting while you meet and confer with a professional advisor?
- If the auditor tells you that you do not need to speak with a professional advisor, and the two of you can sit down despite the appointment snafu, should you do so?
- Must you give the auditor everything set forth in the form letter you received with the audit Inquiry?
- If the auditor requests to be allowed to interview your staff that day, must you comply?
When I first started practicing law, there was a wry comment made by my fellow experienced tax practitioners with a sarcastic grin, “Hello, I’m from the IRS and I am here to help you.” (This, of course, was meant as a joke.) It still happens that both IRS and EDD auditors and collectors try to dissuade taxpayers from seeking professional advice.
Let’s look at the above questions and review some practical answers to them.
Let’s Get Some Answers to these Questions
Must you drop everything and meet with the auditor who showed up at your doorstep?
Mistakes in communication between the EDD and a prospective audit-employer happen. It may be no one’s fault and it doesn’t pay to point the finger of blame at anyone. The important thing to remember is that you should not be intimidated in anyway if this should happen to you. As will be discussed under the next question, you have an absolute right to say “no”; it’s that simple. Sometimes an EDD auditor will show up at my office without an appointment logged on my calendar. When this happens, I apologize for any inconvenience and schedule a new appointment with the auditor. I do not give the auditor a thing! You also have the right not to give the auditor any information or documentation whatsoever. If the auditor gets angry, or threatens you in any way, just show them the door in a polite manner. Ask for their business card. Keep calm, do not raise your voice, and carry on.
Can you stall the meeting while you meet and confer with a professional advisor?
For many years the IRS has had in place several versions of the Taxpayers’ Bill of Rights. The EDD has a very watered-down version as well. The EDD Employers’ Bill of Rights clearly states the following: “You have the right to have someone, such as an attorney, enrolled agent, or accountant, present during the audit or to represent you in your absence.”
You have an absolute right, at any time, and at anyplace, to put a stop on the EDD while you meet and confer with a professional advisor. You may consult with an attorney, CPA, EA, or anyone else before you say another word to the EDD auditor.
If the auditor tells you that you do not need to speak with a professional advisor, and the two of you can sit down despite the appointment snafu, should you do so?
I have seen too many examples of taxpayers who meet and confer with an EDD auditor on their own, only to have deeply regretted doing so later on. I have seen well-meaning people deliberately misled into a false sense of security only to be left in a world of hurt. If you are told that you do not need a representative present during an EDD conference, it’s a sure sign of pending disaster. Don’t do it!
Must you give the auditor everything set forth in the document form you received with the audit inquiry?
There are many articles on this website that go into great depth on what you should or should not give to the EDD auditor. Your best bet and your safest bet is not to give the auditor anything at all during this first encounter.
If the auditor requests to be allowed to interview your staff that day, must you comply?
Just as you should not say anything to the auditor, your employees and those you treat as independent contractors should follow the same rule. While you cannot stop the auditor from reaching out to employees and others, you can put a brake on the process while you seek professional advice.
One of the primary reasons professionals are hired to represent employers in EDD audits, is that the professional stands in your place. All too often we want to show the auditor our best side, and we want to express our reasons why we have treated workers as independent contractors. Unfortunately, the wrong things are said during an entrance interview, and once spoken they never be recalled. You can’t take it back. EDD auditors are experts in interview techniques and in construing your words for their own agendas. That’s why the best advice I can give you during the audit process is to keep your mouth shut.
The bottom line to this article is to seek professional advice before you meet any tax auditor. Don’t go it alone.
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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