ASK THE EDD LAWYER – IMPORTANT RECENT DEVELOPMENT REGARDING WORKER INFORMATION RETURN PENALTIES
By Robert S. Schriebman
Worker Information Return Penalties (WIRP) are found in the California Unemployment Insurance Code (CUIC) at sections 13052 and 13052.5. These are penalties issued by the EDD when an employer fails to issue W2s or 1099s or issues inaccurate forms. While section 13052 imposes only a $50 penalty per violation, section 13052.5 imposes a penalty that is currently 12.3% of the compensation not reported. While the penalty should only be used in the most extreme case of violation, the EDD routinely issues these penalties as a “knee jerk” reaction to virtually every violation without looking into the employer’s motive. The penalty is imposed for unintentional clerical errors. In reality these penalties have become terrorist weapon in the arsenal of EDD penalties.
Serious Due Process Issues on WIRP Assessments
If the EDD assesses the WIRP against an employer, it becomes an exercise in tyranny. There is no due process available to the employer. CUIC § 13052.5(d) currently states that the employer cannot appeal the penalty to the CUIAB. All other parts of the assessment may be appealed without the employer first having to pay them. Payment can be deferred until the assessment is heard by a judge or is settled post-assessment. Not so the WIRP. As soon as the WIRP is assessed, the employer can expect to be contacted by an EDD collector who will demand complete and immediate payment. A Notice of State Lien will be filed against the employer. Any delay in payment may result in a bank account levy without warning.
Even if the employer pays the WIRP, and files a claim for refund, the claim cannot be heard by the CUIAB because sub-section (d) states that CUIAB sections 1221 and 1222 shall not apply to assessments imposed by this section. This means that the only current avenue of due process for the employer is to pay the WIRP and sue for refund in the Superior Court. How many employers are going to do that? The amounts involved must be huge and only large employers can afford pricey litigation. However, large employers hire companies like ADP to make sure they are in full payroll compliance. So, in reality, we currently have an employer with a “right, but not a remedy.” The EDD keeps your money!
New Important Developments
There are two important new developments in the area of WIRP due process:
First: On March 20, 2017 Assembly Bill 1659 was introduced by the Committee on Insurance. Part of that bill proposes to revises CUIC § 13052.5 by striking out sub-paragraph (d) which currently prohibits all administrative due process for assessments and refunds. If signed into law, there will be full administrative due process for this penalty. The penalty will not have to be paid first. There will be no more enforced collection action upon assessment. If a Claim for Refund is filed, you will be able to file a petition with the CUIAB and not have to go to the Superior Court. The penalty will be treated the same as any other part of the assessment. Most likely you will be able to settle the penalty like you can currently settle a regular assessment. This is truly good news, and the chances of passage seem better than 50/50.
Second: There is currently being scheduled before the CUIAB, legal arguments on the issue of allowing administrative due process for refund petitions. This will apply to all refund claims filed prior to the prospective date of enactment of Assembly Bill 1695. I have been chosen by the Presiding Judge of the CUIAB to argue this issue on behalf of taxpayers and employers. The case will be argued in 2017.
Inroads are being made to challenge the absence of due process in WIRP assessments, both in the Legislature and in the CUIAB itself. I am proud to be part of the process of challenging the denial of due process that is currently the policy with the CUIAB. I will keep you posted of developments in these areas.
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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