ASK THE EDD LAWYER – HOW TO GET A GOOD EDD SETTLEMENT
By Robert S. Schriebman
July 21, 2015
Let’s define our terms: What is a “good” settlement? To me a good settlement means one that is fair to both sides. It may not be a win-win situation, but it is certainly not a lose-lose situation. Both sides give up something. The taxpayer challenging the EDD Assessment gives up his or her right to a judge hearing. The EDD gives up the total amount demanded in the Notice of Assessment.
The word “settlement” means that the taxpayer is going to have to pay the EDD some money or receive a smaller refund than demanded in the original filed claim for refund.
How To Get An EDD Settlement
After the EDD issues its final Notice of Assessment (NA), (not the Proposed Notice of Assessment), the taxpayer – recipient has to make a decision. Should a Petition be filed to challenge the NA? Should you pay the EDD and forget about any challenge? Assuming that you wish to challenge the EDD Assessment you will have to make a decision to either resolve the matter by way of settlement or have a hearing before an administrative law judge. Most people I know prefer to have the matter resolved by settlement, especially if that is the best economic choice when taking into consideration the cost of professional representation.
If your choice is settlement of your matter you can contact the EDD’s Settlement Office in Sacramento. The address of the EDD Settlement Office is as follows: EDD Settlement Unit, 800 Capitol Mall, MIC93, Sacramento, CA 95814.
You will receive a letter acknowledging your desire to settle the matter as opposed to a judge hearing. Once the EDD accepts the matter for settlement, it notifies the CUIAB to take your petitioned matter off the judge hearing calendar.
Estimated Assessment Verses Actual Assessment
The EDD Settlement Office will only entertain a settlement when the audit results in an Actual Assessment as opposed to an Estimated Assessment. What is the difference?
An Actual Assessment results in an EDD examination of a taxpayer’s books and records, as well as third-party interviews from workers treated as independent contractors instead of employees. In this type of assessment the taxpayer or the taxpayer’s representative provided the EDD auditor with requested information and documentation. Most EDD audits begin with a standard form request stating the periods under audit and a pre-printed list of standard audit documentation such as W2s, 1099s, general ledgers, and tax returns. From there the audit expands, and each audit has its own unique features. At the end of the audit process the auditor issues an assessment based upon accounting records, interview notes, and other factors. The NA issued is one base upon actual facts and figures.
On the other hand, an Estimated Assessment usually results when a taxpayer or the taxpayer’s representative is perceived by the EDD to be uncooperative or non-responsive. In that event the auditor issues an assessment based upon his or her best guess. These Estimated Assessments are usually punitive and much higher than they should have been had the taxpayer cooperated.
It is important to note this distinction – an Estimated Assessment cannot be settled through the EDD’s Settlement Office. Your matter remains on the CUIAB hearing calendar. It has to go before a judge. You may be able to settle your matter “on the courthouse steps” before you undergo a formal trial.
Jurisdiction Of The EDD’s Settlement Office
The EDD’s Settlement Office only entertains settlements where a Petition has been filed with the CUIAB as a result of the issuance of a NA or when a refund Petition is pending before the CUIAB. My experience has been that the Settlement Office will not entertain a settlement based upon an Estimated Assessment or a defaulted NA.
If you received an NA, you have 30 days to file a Petition to protect your rights. Sometimes an NA has not been properly issued. It may have been sent to the wrong address. By the time the taxpayer receives the NA the 30 day filing period has expired. Now we have what is known as a defaulted assessment. The Settlement Office cannot get involved in the settlement process for any type of defaulted assessment. If a taxpayer is negligent and does not timely file a Petition, the Settlement Office cannot correct the problem by entertaining any type of settlement. A defaulted assessment is subject to EDD collection, but that’s the subject of another article.
The lesson is very clear: If you receive a Notice of Assessment you have the responsibility to timely file a Petition if you want to take advantage of the EDD settlement program.
Preparing Your Settlement Proposal
In our office we submit a formal Settlement Proposal. In that proposal we evaluate the EDD’s internal files and point out where there are errors. We also submit a legal analysis citing relevant cases and other legal authorities. Our job is to point out to the EDD its hazards of litigation.
I do not recommend that you simply make the EDD a bald settlement offer. You need to do your homework. I recommend that you obtain your files from the EDD office that conducted the audit. This should be a written request sent to the assigned auditor or his or her supervisor. Make sure you ask for the Audit Report, as well as copies of notes from third-party interviews. This documentation is free upon request. Study the documentation very carefully so you can point out errors or misunderstandings to the EDD Settlement Office.
Most EDD settlement resolutions are fact driven. This is why getting your files from the EDD is so important.
You might even wish to hire the services of an attorney to do some legal research for you and prepare a memorandum of points and authorities for any legal argument you wish to make.
Commitment To Treat Future Workers As Employees
Part of every EDD formal written settlement proposal resolution is your agreement to treat future misclassified workers as employees. As of a date certain in the future you will be required to treat workers originally treated as independent contractors has employees in the future. This means you will be required to withhold IRS and EDD employment and withholding taxes as well as timely filing quarterly and annual payroll tax returns. If this requirement ruins your current business model, you will have a choice of either changing your model or forgetting about the settlement process and electing instead to have a hearing before an administrative law judge.
Don’t Forget To Send The PIT Abatement Declaration
If you timely issued W2s and 1099s for the years involving your EDD audit, you are entitled to have most if not all of the Personal Income Tax (PIT) portion removed from the Notice of Assessment. Most EDD auditors will give you Form 6028p “Declaration” during the examination process. This is a simple form to complete, sign, and send into either the EDD auditor or the Settlement Office. If the EDD auditor did not give you the form you can request it from the auditor or your assigned settlement officer.
Payment Of Your Settlement In Installments
If you agree to the amount of the EDD settlement offer, but you cannot pay it in full within 30 days from the date the final settlement is approved, ask your assigned EDD settlement officer to arrange for monthly payments over 12 months or more.
Someone once said that a good settlement is better than a good lawsuit. That is wisdom indeed.
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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