ASK THE EDD LAWYER- ARE THERE DANGERS IN KEEPING THE SAME EDD ACCOUNT NUMBER WHEN CREATING A NEW BUSINESS?
By Robert S. Schriebman
There can be dangers and the risk of additional expenses and headaches if you keep the same EDD account number that you used in a prior but now defunct business enterprise. These expenses often involve exposure to mistaken EDD assessments and the professional fees involved in fighting these mistaken EDD assessments including the expense and inconvenience of a formal judge hearing.
I want to tell you a true story about what happened to my clients when they made the mistake of using the same EDD account number when they created a new and completely separate business.
A Real Life EDD Horror Story
An Old Corporation Owes the EDD.
Mark and Amy Jones (not their real names) owned and operated a small appliance repair business. The business was incorporated in 2001 as Jones Appliance Repair Inc. When the corporation was formed, they applied to the EDD for an account number. The business ceased operations in September 2008, but Mark and Amy did not go through the formal process of winding up and dissolving the corporation; they just let the corporation die. The corporation owed the EDD back payroll taxes from filed returns without accompanying payment. However, the EDD never got around to assessing Mark and Amy personally for corporate level payroll deficiencies pursuant to §1735 of the California Unemployment Insurance Code (CUIC). Yet the EDD continued to send delinquency bills to Mark and Amy stating that the corporation still owed considerable back payroll taxes.
Amy Goes Into a New Business for Herself.
After the corporation ceased doing business in September of 2008, Amy decided to go into a new and separate business. She opened a women’s resale shop in October 2008. This business was not incorporated. Amy took out a business license and filed a fictitious name statement as a sole proprietor “Amy’s Amiable Fabulous Fashions.” She hired the services of a professional payroll company. The payroll company informed her that she could keep her old EDD account number. Amy, being a very cautious person, also contacted the EDD who confirmed that she could keep and use her old account number.
Amy Files All Her Returns and Pays All EDD Payroll Taxes
Amy opened her resale clothing shop in October of 2008. She timely filed all EDD quarterly payroll tax returns under the name of Amy’s Amiable Fabulous Fashions. She used the old EDD account number following the advice of both the EDD and her professional payroll service. She also timely paid all payroll taxes. She did not owe the EDD one dime. It is important to keep these facts in mind as our story unfolds.
The EDD Tries to Collect the Old Corporate Debt from the Individual Shareholders.
In the meantime, the EDD was being more aggressive in trying to collect the old corporate tax debt. There were letters and phone calls from EDD collectors. According to Mark and Amy the EDD collectors threatened to levy their bank account and garnish Mark’s wages for the old corporate debt. Needless to say, they were quite upset with these calls and sought legal representation.
Mark and Amy hired my office to represent them. I informed the EDD that the old corporation was out of business and had no assets. I also informed the collector that the EDD was now too late to go after Mark and Amy personally and that any threats of this kind were illegal and must cease immediately. The collector I spoke with was very professional. After some research on his part, he called to let me know that I was correct and that the EDD could not take any funds from the Jones’ personally bank account or garnish Mark’s wages. This seemed to stop the EDD contacts, or did it?
The EDD Becomes Confused and Issues New Tax Assessments.
After the EDD agreed that Mark and Amy were not personally liable for the old corporate payroll taxes, the EDD began to issue a series of assessments in the name of the old corporation! The EDD issued a formal Notice of Assessment for each quarter of 2012 and two quarters of 2013. All in all, there were six assessment notices issued. Each assessment notice was for the same dollar amount as the corresponding quarterly return for that period filed by Amy for her clothing business. Each Notice of Assessment required the filing of separate Petitions to the California Unemployment Insurance Appeals Board; six petitions had to be filed! The next step would be a formal hearing before an administrative law judge.
The Administrative Law Judge is Not a Happy Camper.
A formal hearing was held before an administrative law judge. The judge was angry at the EDD for putting Mark and Amy through the expense and inconvenience of a formal hearing only to have to put to rest internal confusion within the EDD. Mark and Amy had to pay attorney’s fees and had to take time off from earning a living.
A Clear Lesson.
As you can see from Mark and Amy’s horror story, it is not wise to use the same EDD account number that was used in a business that is now defunct and no longer operating. Even though it may be clear to you, your accountant, or your payroll service that you are no longer in the same business, keeping the same account number may cause internal confusion within the EDD with the results being substantial costs in legal representation in order to clear up a mess that could have been avoided by applying for a new account number.
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, 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.