ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHEN YOU OWE THE EDD – NEGOTIATING A WORKABLE INSTALLMENT PAYMENT ARRANGEMENT – PART 2
By Robert S. Schriebman
This is Part 2 of this two-part series in which I 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. Here I will discuss the fact that EDD agreements are subject to periodic review and cancellation. I will discuss the documentation commonly required by the assigned EDD collector. I will also discuss the use of IRS cost of living standards and offer suggestions on what to do if you and the collector cannot reach a mutual arrangement.
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.
It cannot be stressed enough: you must make a full and honest disclosure of your financial picture. This means a full disclosure of bank accounts, real property, and all sources of income.
EDD Payment Arrangements Are Subject to Review and Cancelation
Most EDD formal installment agreements are short-term usually lasting no more than one or two years. The reason for this allows the EDD to periodically review a taxpayer’s current financial condition to determine if the taxpayer can pay more on a new agreement. This is not unusual. The IRS also periodically reviews installment agreements.
Documentation Required for a Successful Agreement
Business and individual financial statement forms are the first documentation required to successfully negotiate a payment arrangement. Different EDD collectors require different additional documentation but all want copies of the most recent 6 months of business and personal bank statements. Even if a page of the bank statement is blank, it must be copied and submitted! A few collectors will demand that you attempt to borrow money from a reputable lending institution. If you are turned down the EDD collector will want a letter or email from the lender declining the loan. Monthly expenses may also require proof such as a monthly mortgage statement, utility bills, cell phone bills, and a car payment statement. But, as I said earlier, it’s up to the collector what proof is required.
Reviewing Cost of Living Standards
For the past 15 years or so the IRS has required taxpayers seeking installment agreements to use cost of living standards published annually by the federal government. Sometimes this can be very helpful especially when it comes to personal items such as food and clothing as most people do not pay attention or track these costs. These cost allowances cover families without limit to the number of children. For example, in 2018 these monthly allowances total $1,202 for a family of 2 and $1,694 for a family of 4.
The national standards also set forth maximum allowances for vehicle ownership costs and cost of operating vehicles. These are 1 and 2 car allowances. For example, the vehicle ownership cost allowances for Southern California in 2018 for 1 car is $289 per month and for 2 cars it is $578 per month.
The guidelines also establish housing and utility allowances for up to a family of five. These allowances are set forth for each county in California. For example, in 2018 the allowance for a family of 2 in Los Angeles County is $2,583; for a family of 4 it is $3,035.
There are also allowances for out of pocket medical and dental costs.
As of this writing, the EDD has not officially recognized these federal standards, especially the standards allowed for food and clothing. However, I have written to the Director of the EDD and requested that he consider adopting these standards for purposes of establishing workable installment arrangement.
Expect a Notice of State Tax Lien to Be Filed
It is a matter of routine with the EDD that a Notice of State Tax Lien be filed with County Recorder of the county in which you reside. Yes, these liens will hurt your credit score and may do other damage to business relationships. However, the EDD is a creditor and a lien notice makes the EDD a secured creditor much in the way that a lending institution will file a deed of trust.
If You and the Collector Do Not Agree – Unreasonable Collector Demands
Sometimes some things just don’t work out as planned. You want to pay “$X” and the collector wants “$Y.” And it is unfortunately true that the demand by an EDD collector may be so high that it does not allow for future unexpected expenses. The EDD is not structured like the IRS. There are no Collection Due Process (CDP) proceedings. There are no structured EDD avenues of appeal. If you and the collector cannot agree you should ask to speak with his or her manager. If you cannot reach an agreement with the manager your next move is to go through the EDD Taxpayer Advocate. The staff of the Advocate will get involved in your matter if they believe they can assist you.
There has been much said in the two-parts of these articles dealing with the successful negotiation of an EDD installment payment arrangement. If I could emphasize anything, it would be the importance of a speedy and honest response to any collector contact. In other words, communication is the key to success. You should also make a full and honest disclosure of your business or personal financial situation. If the EDD finds out that you have hidden major assets, or have lied on your financial statement, you will run the risk of a failed negotiation or a premature termination of your installment agreement.
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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