ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHEN YOU OWE THE EDD – NEGOTIATING A WORKABLE INSTALLMENT PAYMENT ARRANGEMENT – PART 1
By Robert S. Schriebman
This is Part 1 of a two-part series that will discuss EDD installment payment arrangements and how to successfully work with the EDD in establishing a monthly installment payment arrangement that is a win-win for both the employer and the EDD tax collector. In this series I will discuss the importance of communication with the collector as well as review the basic financial information necessary. I will also discuss the avenues available should your collector make unreasonable demands upon you.
There are no laws on the books requiring the EDD to grant you an installment payment arrangement. Instead, the EDD has published the Employers’ Bill of Rights, DE 195. In that publication the EDD makes it clear that the Code does not provide rules about payment arrangements. The EDD has an Information Sheet discussing installment agreements (DE 631P). The Bill of Rights stresses the importance of making timely payments but warns that if the EDD discovers you have the ability to full pay, the EDD is allowed to abruptly cancel your agreement and demand immediate full payment. You are put on notice that a tax lien will be filed and future refunds, both state and federal, may go to pay off your debt.
There are two types of payment arrangements: formal and informal. An informal arrangement is one in which you voluntarily send in monthly payments without the necessity of the creation of a formal written agreement.
This series of articles will discuss formal written installment agreements. In Part 1, I will discuss the importance of communication. Next, I will look at the typical demands made by EDD collectors before they will consider granting a payment arrangement. I will then review the basic requirements of financial statements for both business and individual taxpayers. In Part 2, I will review the application of federal standards of allowable expenses and whether these have any impact upon the EDD. Finally, I will discuss the avenues available to you should the EDD either refuse to grant you a formal agreement or if the EDD collector makes unreasonable demands for the amount of monthly payments.
The Importance of Communication
There is an old saying in the restaurant business: “a successful restaurant is all about location, location, location.” When it comes to avoiding EDD enforced collection action, the key watchwords are “communication, communication and communication.”
I have represented clients before IRS, FTB, EDD, and BOE collectors for over four decades – that’s over 40 years! Most of the horror stories I hear from clients about the unreasonable conduct of collectors boils down to the reality that the taxpayer consistently failed to communicate with a collector to the point where, out of consternation, the collector takes the position that there are no other options available than to get the taxpayer’s attention by garnishing wages, levying bank accounts, and filing a Notice of State Tax Lien. Most of the time, all of this angst can be avoided, if the taxpayer did not dodge the collector.
In the world of taxation, no one has more absolute power than a tax collector doing his/her job within the law. This applies to the IRS and the EDD too. Not even the Chief Justice of the US Supreme Court can legally issue an order stopping a legal and proper tax collection activity. People fail to realize this. Most collection problems arise because the tax debtor’s head is buried in the sand like an ostrich. The EDD has many years to collect what is owed and interest continues to compound daily.
An EDD collector, assigned to collect an account, will first either send a collection notice or telephone the employer to make arrangements for payment. At this point in time it is most important for the employer to respond timely. A prompt response today avoids pain tomorrow. You may not be able to fully pay the amount owed, but try to send a good faith initial payment. All tax collectors have one thing in common – they like money and want yours. I cannot give you better advice than this.
I often receive calls from people who do not understand how or why a relatively small EDD debt owed in past years can mushroom into a gigantic headache. To understand this, and the impact of delinquency penalties and daily compounding interest see Article 350 on this website.
A Review of the Required EDD Financial Statements
The EDD publishes two types of financial statements: DE 926B, Financial Statement for An Individual and DE 926C, Financial Statement for Business. They both have instructions attached. Let’s look at each type.
Individual Financial Statement
Most of the required information is self-explanatory. With regard to “Bank Accounts” the EDD wants the information for both checking and savings accounts. Most people neglect to provide information for savings accounts. The EDD will also require copies of the most recent 6 months of bank statements for each account. Since most tax debts in California are community property, the accounts for both spouses must be disclosed. A pre or post nuptial agreement may insulate one spouse from this exposure.
Personal Assets and Real Property
You are allowed to discount the fair market value of property by its “Forced Sale Value.” This is usually a 20% discount. With regard to personal assets, the EDD only cares about motor vehicles. The EDD does not want to know about the value of your clothing, jewelry and most personal affects.
Note: As a matter of long term policy, the EDD does not seize and sell an employer’s personal residence. This is a comforting thought indeed!
Available Credit Sources
No tax collector is allowed to demand that you maximize borrowing on credit if you will not be able to repay your credit union or credit cards because you are now paying that money to the EDD.
Monthly Income and Expenses
This section is the heart and soul of the financial statement. It is this portion of the financial statement that will determine what the EDD expects to collect on a monthly basis. Unfortunately, many people completing this portion fail to provide full disclosure of their monthly expenses. For Example, they may be making monthly payments to the IRS or FTB and fail to inform the EDD collector. Taxpayers should also take into consideration IRS National Guidelines that can be found on the IRS website. This will be discussed in Part 2.
Some EDD collectors may require proof of monthly expenses such as copies of mortgage statements, utility bills, car payments, and out-of-pocket medical bills. Never send the EDD original documents as you may never see them again.
Business Financial Statement
It is advisable whenever possible that you have your accountant or CPA assist you in the preparation of this statement. Some EDD collectors may also require that a balance sheet as well as a profit and loss statement be prepared as well. The collector will also require copies of the most recent 6 months of business bank statements
The preparation and the submission of the business financial statement carry with it a possible hidden danger. As a matter of course, collectors are now asking for a Corporate Information Questionnaire along with the financial statements, etc. The questionnaire wants the identity of potential responsible persons for purposes of the CUIC § 1735 assessment against them individually. CUIC § 1735 exposure is discussed in many articles on this website. EDD collectors may not grant an installment payment arrangement without the questionnaire.
In Part 2, I will review the documentation required for a successful agreement, IRS Cost of Living Standards, and dealing with unreasonable collector demands.
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.
Web Site Article 354