Ask The EDD Lawyer – Dealing With IRS And EDD Collectors – Importance Of Being And Keeping Current
By Robert S. Schriebman
May 21, 2015
My job is to solve my client’s tax problems. This includes successfully negotiating installment payment arrangements with the IRS and the EDD. I have also had much success in getting these taxing agencies to “yes” on offers in compromise (OIC). All of these negotiations have a common thread – the taxpayer, my client, must be current at the time of the negotiations and remain current or run the risk of having it all blow up in his or his face.
What does “being current” and “keeping current” mean? This is what this article is all about. In this article we will look at these requirements with regard to IRS Collection Due Process (CDP) proceedings and EDD installment payment arrangements.
IRS Collection Due Process Proceedings (CDP)
I am proud to say that I was instrumental in the creation of the IRS’ Collection Due Process proceedings. During the IRS Oversight Hearings in the late 1990s, I testified before the Senate Finance Committee and in front of very important Senators such as the late William Roth (Roth IRA fame). I pointed out to the Committee that while there was much due process when it came to IRS audits there was none for people who owed the IRS. I worked almost daily with Senator Roth and his staff to create a workable due process system for the American taxpayer. The result was the establishment of the CDP process which now occupies a majority of the work load of both the IRS Appeals Division and the US Tax Court.
If you owe the IRS and cannot pay in full you can work out an installment payment arrangement, offer in compromise, or any number of issues relating to your matter without the fear of IRS seizures, wage garnishments or bank account levies.
Being Current Is The Key To Success
In order to have successful results with the IRS, you must be current at the time of your CDP hearing. The IRS assigned Settlement Officer will research your compliance status before your conference. If you are a W2 wage earner, you should have adequate withholdings from your paycheck. If you are self-employed, you must have filed quarterly estimated tax (ET) payments prior to the hearing. If you owe back payroll taxes you must have timely filed your most current quarterly payroll tax return and have paid those taxes, per that return, in full.
I recently had a client who worked for a company as an employee but did not have any withholdings taken from his paycheck. His employer did not treat him as an independent contractor. Admittedly this is not your typical situation and is a violation of both state and federal payroll tax laws. I stressed to my client that he had better have made quarterly ET payments before his CDP hearing date.
If you are not current with your withholdings or ET payments at the time of your CDP hearing, the IRS will grant no concessions. This means no installment payment agreement or OIC will be possible. In that event your CDP case will be closed as far as the IRS is concerned leaving you to argue your case before a US Tax Court judge. The judge most likely will agree with the IRS and throw your case out of court. Your matter will them be assigned to a field Revenue Officer or the IRS Automatic Collection System (ACS). You can expect to be in a world of hurt and run the risk of enforced collection against you.
Assuming you are current at the time of your CDP hearing, and the IRS grants you either an installment payment agreement or an OIC, you must remain current. This means different requirements depending upon whether you are an individual taxpayer or a business taxpayer.
Individual Income Tax Returns
If you are an individual taxpayer you must have adequate withholdings taken out of your paycheck so that you do not owe the IRS any money when you file your income tax return. If you are self-employed you must timely file and pay your quarterly ET payments so that you do not owe the IRS any money when you file your income tax return. You must timely file your income tax return and not incur either a late filing penalty or a late payment penalty.
Payroll Tax Returns
If you are a business taxpayer and you negotiated a payment arrangement for back payroll taxes, you have additional requirements for keeping current. These requirements are also part of any negotiated EDD installment payment arrangements. You must make your state and federal payroll tax deposits timely. This applies to both small and medium sized businesses. You must file your IRS 941 and EDD quarterly returns timely and pay your quarterly taxes by the due date. The same applies to the IRS annual 940 FUTA return. If you are required to make electronic payments every two weeks you must do so without fail.
There is great risk to an employer for failing to timely file payroll tax returns or make timely payroll tax deposits. Not only will you breach your installment payment agreement but you run the risk of having your matter assigned to an IRS Field Revenue Officer (RO). This RO, when properly doing his or her job, has more power than the Chief Judge of the US Supreme Court! The RO can levy your bank account, close down your business, and can be instrumental in having federal criminal charges brought against you.
The EDD collector has the same power as his or her IRS counterpart. In addition to what the IRS can do, the EDD collector can put a “keeper” in your business to collect funds needed to pay your back taxes.
Unfortunately most of my clients do not fully understand or appreciate the importance of being and keeping current. Both the IRS and the EDD now have strict requirements for keeping current. Once you default on your installment payment agreement you will have a black mark against you in both the IRS and the EDD files. This means that the next time you ask for a new or reinstated agreement you may not get one. In that event you will at the mercy your assigned tax collector.
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.