ASK THE EDD ATTORNEY – THE EDD IN 2018 – WHAT’S IN STORE FOR THE EMPLOYER?
By Robert S. Schriebman
An old cliché tells us that the two certain things in life are death and taxes. I would like to offer my own cliché, that the two certain things when it comes to the EDD are taxes and change. I have been involved in EDD matters longer than I can remember, so I think I know a thing or about the EDD and what we can expect in 2018.
In this article I am going to discuss new changes in Worker Information Return Penalties (WIRPs) and give you some insight how you can protect yourself in the closing weeks of 2017 and what 2018 will hold. I will also discuss new EDD efforts for transparency in the audit process. I do believe that 2018 is going to see not only an increase in the number of audits, but also increases in the amounts of assessments.
Changes In WIRP Assessments and Strategies
If you have read my prior articles involving WIRPS you may have come across what is certain to be the major procedural change in WIRP assessments and refund procedures. Earlier this year, I won a landmark case against the EDD. The case involved the legal principal of whether or not the CUIAB could legally hear an administrative refund petition. For a very long time the CUIAB took the position that it had no jurisdiction to hear a case involving a refund of WIRP penalties. The taxpayers’ only avenue for a forum was in the Superior Court. Very few if any taxpayers had the money or patience to wait out a Superior Court trial. A Superior Court Judge who truly understood this technical area of taxation was unlikely. Most Superior Court judges do not like tax cases. The taxpayer was caught between a rock and a hard place. The CUIAB had judges who understood payroll tax assessments and penalties. However, that door was closed.
In August 2017 I argued and won the landmark decision that now allows the CUIAB to hear WIRP refund cases on their merits. The EDD appealed this victory, but gave up and agreed to abide by the CUIAB decision. The door for hearing refund cases in the CUIAB is now wide open.
While the CUIAB refund matter was being argued, the legislature passed a bill repealing that section of WIRP law that prevents the CUIAB from hearing pre-payment cases on their merits. Governor Brown signed the bill into law. This new law will go into effect on January 1, 2018. This means that if and when the EDD assesses a WIRP, that penalty will no longer have to be paid before it can be administratively challenged.
As of January 1, 2018 if you are on the receiving end of a WIRP assessment, you can file the same type of a petition and include WIRP assessments without an EDD Collector hounding you or levying on your bank account without warning.
Defensive Matters You Can Do Now To Minimize Your Exposure to WIRP Payments
Last week I received a call from Chief Judge Madeline Hilton of the CUIAB. During the course of our conversation, Judge Hilton gave me some advice right from the very top of the EDD – I pass it on to you: If you or your client receives a Notice of Assessment containing WIRP penalties prior to the of end of 2017, do not be in a rush to file a petition. File your petition in January 2018. If you file your petition before the end of the year, you will have to pay the WIRP and go through the refund process. However, EDD’s official policy says that if you wait until January to file a WIRP assessment issued in December, the penalty will not have to be paid in advance!
Starting January 1, 2018, when it comes to WIRP penalty collections, the EDD Collector will be powerless to enforce collection.
Changes In EDD Audit Strategies And Tactics
2018 will see a more aggressive EDD; an EDD that will demand employer transparency during the audit process. In 2017, bowing to pressures from other government agencies, the EDD hired more auditors. These new auditors now have months of field experience and are now seasoned auditors. In the past few months I have seen increased demands for information and documentation that had not been part of earlier audits. Auditors have started to request such things as profit and loss statements, balance sheets, and trial balances for the years under audit. They are also requesting copies of bank statements and cancelled checks. Auditors are now requesting that employers produce federal income tax returns as well as quarterly payroll tax returns, form 941 and the annual FUTA return form 940. Auditors are also asking employers to produce quarterly and annual EDD returns that they already have in their systems. In the past auditors were satisfied with just receiving W2s and 1099s.
It’s clear that 2018 is going to be a year of new tensions and contentions between employers and the EDD. We can anticipate employer resistance to the production of intrusive documentation as well as documentation the EDD may not legally be entitled to request or may not be relevant to worker status issues. If employers refuse to produce what the EDD wants, we may see larger assessment with additional penalties as well as statements in audit reports that the employer was not cooperative in the audit process. How this will sit with administrative law judges will be interesting.
From where I sit, it appears that the EDD has taken a new page out of the audit demands for transparency that are now part of routine IRS audits for small and medium-sized businesses. I have challenged EDD demands for employer records that I firmly believed were overly intrusive and not relevant historically with my experience over the years. Most of my challenges have been successful and compromises have been reached. But I find the frequency of these demands and challenges increasing. I find myself confronted with an ancient Chinese proverb,
“May you live in interesting times.”
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.
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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