ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT YOU NEED TO KNOW ABOUT THE EDD’S SETTLEMENT PROGRAM
By Robert S. Schriebman
Abraham Lincoln is credited for saying that a good settlement is better than a good lawsuit. I recall years ago when I was having lunch with a boyhood friend who is also an attorney. He specializes in trial litigation. I had what I believed was a good lawsuit. I presented him with the facts and asked his opinion of my chances of prevailing in the litigation. He agreed. Indeed, I had a good case. But he advised me to settle, “Bob, what if you get a dumb judge?” I settled the case.
Since that discussion, I have become an advocate of the EDD Settlement Program. This article will discuss the statutory authority allowing the EDD to settle cases, the settlement process, and the basic elements of a settlement proposal. I will also discuss how the settlement process works as an insurance policy against a corresponding IRS audit.
EDD’s Settlement Statute
CUIC § 1236 is the statutory authority authorizing settlements. The statutory threshold is $7,500. The Attorney General of the State of California (AG) has jurisdiction to accept or reject a settlement proposal. This means that the EDD’s Settlement Office must submit the proposal to the AG for consideration.
CUIC § 1236 requires a public record of any settlement agreement that forgives more than $500 in taxes and penalties. The record is on file with the EDD Director in Sacramento.
EDD’s Settlement Process
Settlements are considered only when the taxpayer files a timely petition with the CUIAB. This can be a petition challenging an assessment or a petition following the denial of a claim for refund. A late filed petition is not eligible for settlement considerations. Usually assessments involving civil fraud penalties or criminal investigations will not be eligible for settlement.
The primary criteria, considered by both the EDD and the AG, is the hazard of litigation to the EDD. Occasionally, economic hardship on the part of the employer will also be considered. Usually, the factor of economic hardship comes into play when the employer requests an installment payment arrangement lasting longer than 18 months. To be eligible for a settlement installment payment arrangement of more than 18 months, the employer is required to submit financial hardship proof such as bank statements and financial statements.
Settlement Agreements in Repetitive Audits
It rarely happens that an employer who has an existing settlement agreement based on a previous audit is reaudited a second time and issued an assessment. Is a second settlement agreement allowed under these circumstances? Usually not.
Elements of a Settlement Proposal
Settlement proposals must be submitted in writing and sent to the following address:
Employment Development Department
Settlements Office, MIC 93
P.O. Box 826880
Sacramento, CA 94280-0001
There is no set form for a settlement proposal. Here are the basic requirements:
- Your EDD account number
- The name and contact information of the individual authorized to represent the employer and to negotiate with the EDD.
- The date of the assessment or claim for refund. The EDD also needs to know if the assessment is estimated or based upon an actual examination.
- The amount of your offer and payment terms should you wish to make installments (usual maximum installments are payable over 18 months).
- Your analysis of points of law, and risk of loss to the EDD should the matter go before a judge.
The Settlement Agreement
All EDD settlements must be evidenced by a formal written settlement agreement that recites the terms and conditions of the settlement including installment payment arrangements. In each agreement there is a specific section stating that at a date certain in the future, the employer must treat questionable workers as W2 wage earners and no longer as independent contractors.
IRS Exposure in EDD Settlements
The EDD has information sharing agreements with the IRS. the IRS does not like to get involved in an EDD worker status audit unless and until the case at the EDD is totally resolved. EDD audits that result in assessments that are promptly paid by the employer, and do not get involved in the settlement process, have a much greater exposure to an IRS “Me Too” audit that a case that is resolved perhaps years later through the EDD Settlement Program. Also, settlement files are not generally available to the IRS.
My friend’s comment about the risk of getting a dumb judge or a bias judge in the administrative hearing process, continues to impress me as being words of wisdom. I believe in the EDD’s Settlement Program and recommend that my clients attempt a good settlement before rushing off to a formal judge hearing.
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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