ASK THE EDD LAWYER – GETTING INTO TROUBLE WITH THE EDD PART 2
By Robert S. Schriebman
February 29, 2016
This is Part 2 of a 2-part series that will discuss the areas that I have found in my practice to cause the employer misery during an EDD audit. By misery I mean a harsh assessment either based upon the information and documentation that the EDD auditor has to work with or a harsh estimated assessment. Many EDD auditors are overworked. They have large case backlogs and are under pressure from EDD management to close an audit and issue an assessment.
Much of the information in this article as well as in Part 1 have been the results of my own experience in the EDD audit process or has been learned from the many telephone calls I receive from all over California from employers trying to make sense out of how they got themselves into this mess in the first place.
Part 2 will be devoted to how employers and their tax advisors get into trouble during the actual EDD audit process.
How Employers And Their Professional Representatives Are Getting Into Trouble with The EDD During The Audit Process.
Failing To Cooperate With The EDD Auditor
An EDD audit is just that – an audit. The EDD auditor has a job to do. He or she is usually on some type of a time constraint. The chances are that your case is only one of many stacked on the auditor’s desk. EDD auditors appreciate prompt and accurate attention to their requests for documentation and information. The audit is not a time to make friends. In fact, the EDD auditor is not your friend. You may not like your auditor, but you can do very little about it.
The EDD has hired many new and inexperienced auditors. You may feel that the auditor is asking too many questions about your business. Keep in mind that the auditor may be unfamiliar with your industry or type of business and is undergoing a learning process. Patience on your part will go a long way; rudeness always offends.
EDD auditors prepare an Audit Report (AR) after each audit. A judge may review the AR. One of the things that you do not want in your AR is a notation that the taxpayer was uncooperative in the audit process.
No Games Please
Some professional tax representatives take the approach that an audit is a sort of game. They adopt a tactic of stalling in the process of providing documentation and information. They send only a portion of the documentation requested by the auditor. They fail to respond to emails from the EDD that are follow ups for initial requests for documentation and information. These tactics may initially work on inexperienced EDD auditors. But you must keep in mind that these young auditors have experienced supervisors as well as other more experienced auditors they consult with. A more experienced EDD auditor can tell immediately what’s going down.
A responsible tax representative, experienced in EDD audits, treats the EDD auditor the way the practitioner would like to be treated. Mutual respect and cooperation goes a long way. In the end a professional approach to an audit may result in the auditor deciding not to assess certain penalties.
Giving The EDD Too Much Documentation and Information
One common occurrence that I see with almost every person under EDD audit, but not represented by an experienced professional, is giving the EDD too much information and documentation. These individuals cooperate themselves into unnecessarily large EDD assessments. If they would have spent some time consulting an experienced professional they would have learned not to share so much with their EDD auditor. A good professional earns his or her fee not by developing and presenting complex legal arguments, but in controlling the flow of information and documentation.
The EDD has taken a lesson from the IRS. EDD audits now have developed a “Star Trek” philosophy – the EDD auditor is now going where no EDD auditor has gone before. For example: EDD auditors now look at credit card expenditures. They want to see all bank statements and they want you to copy all cancelled checks. There are serious issues of these requests being overly broad and irrelevant to a worker status examination.
Failing To Cooperate With Your Representative
I have difficulty understanding why clients pay their EDD professional hard-earned money and then fail to cooperate with their attorney or accountant in the EDD audit process. Clients miss appointments. Worse, they lie to their professional advisor. Still others think they can get out of the EDD audit by stalling in providing documentation and information. This tactic usually backfires badly.
The cartoon character POGO is famous for his remark, “We have met the enemy, and they is us.” Don’t be your own worst enemy. If you want to handle the EDD audit by yourself, be my guest. However, before the EDD audit starts invest wisely in one or two consultations with a professional who has “walked the walk.”
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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