ASK THE EDD ATTORNEY – WHAT ARE THE COMMON MISTAKES MADE DURING AN EDD AUDIT?
By Robert S. Schriebman
I have been representing clients before the EDD for many years primarily handling EDD audits and post-audit appeals. I have learned that there are a lot of ways to get yourself in trouble with the EDD (and the IRS for that matter). In my experience, these mistakes are the most common:
“I will go it alone and handle the audit by myself. I do not need to consult a professional.”
Most people who become really sick go to a doctor. They do not diagnose their own illnesses. If they need surgery they do not operate on themselves. An hour or two discussing your case with a professional may avoid you making costly mistakes, giving the EDD too much information or saying the wrong thing at the wrong time. Do not expect a “freebie.” Skilled EDD practitioners are few and far between. They are usually very busy practitioners whose time is money. All they have to sell is their skill and time. Expect to pay for it. A small fee paid to a competent practitioner may be the best investment you will make in your EDD audit experience.
“I will fully cooperate with the EDD and give them everything they ask for.”
There is an old expression, “If you don’t ask, you don’t get.” This is the EDD’s mantra. I can not recall one audit where the EDD auditor made a request for information and documentation that they were not legally entitled to have. When the EDD obtained this information it opened more audit doors, expanded the audit, and resulted in a larger assessment. The EDD is not entitled to things such as federal income tax returns and federal employment tax returns. The EDD is not allowed to go into your books and records to conduct a “fishing expedition.”
“I am an honest person, and if I sit down with the EDD auditor and tell him or her my story. The auditor will believe me, and the audit will be over before it starts.”
This may be the biggest myth of them all! In my experience, I have found that the EDD makes up its mind how they will treat your worker classification status before they learn anything about how you conduct your business. In other words, as an institution, the EDD’s mind is made up in advance. Do not confuse them with facts. They are not rude. They will sit and listen to your story and why you treated your workers as independent contractors. After you shake hands and leave the meeting most of what you said has gone in one ear and out the other. You are usually better off keeping your mouth shut and letting the EDD do the talking.
“I just got my EDD Notice of Assessment. I will pay it because ‘one can’t fight City Hall.”
The EDD hopes you take this exact position. Unfortunately, when people give up too early they lose the opportunity to challenge the assessment before a judge or try to work out an administrative settlement. Most of the time, it pays to fight the EDD. You may lower the assessment substantially and even eliminate a lot of those pesky EDD penalties. A premature resolution may also involve bringing the IRS into your case with a resulting IRS assessment that is many times larger than that of the EDD. Seek professional advice before you throw in the towel. However, seek that advice promptly because you only have 30 days to file a petition to challenge the EDD audit.
“Once the EDD issues an assessment I have lost the ability to negotiate a lower amount through a settlement.”
The EDD has a small unit known as the Settlement Office. The job of the settlement office is just that – settlement. Most smart practitioners know that a good settlement is much better than good lawsuit.
“I will come to the hearing alone. I will tell my story. The judge will see things my way.”
Perhaps it was Abraham Lincoln who said, ‘A person who represents himself has a fool for a client and an ass for a lawyer.’ Believe me, the EDD will be very prepared at your hearing. Many judges are favorably inclined toward the EDD because they are well trained and are experienced in appearing before them. It is like trying to fight a traffic ticket for running a stop sign or a red light. The judge usually believes the testimony of the cop.
Judges may not have the same view of your case as you have, and the judge may know the law better than you do as they have most likely studied the law and precedent cases on your matter. You are wise to consult a professional before your hearing date to see if there is any CUIAB authority either in your favor or against you. The EDD may object to your offer of evidence and your testimony. If these objections are sustained, you may sit there looking very foolish with no place to hide. Consult a professional.
An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.
As a trusted EDD attorney, Robert S. Schriebman has successfully dedicated more than 30 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 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 and 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.