ASK THE EDD LAWYER – PROTECTING YOURSELF FROM AN EDD CUIC § 1735 ASSESSMENT – PART 2
By Robert S. Schriebman
This is part 2 of a 2 part series.
A recent case here in the office brought home the importance of protecting yourself from being a target of personal liability for unpaid corporate or LLC payroll tax deficiencies. Section 1735 of the California Unemployment Insurance Code (CUIC) allows the EDD to ignore the corporate or LLC entity and issue an assessment against so-called responsible persons who handled the day-to-day business affairs of the company. There is a difference between the EDD version of this assessment and the IRS counterpart under IRC § 6672. The IRS version carries an exposure of approximately 60% of what is owed by the entity; the EDD version is 100%. And that 100% includes every dime of tax, penalties and accruing interest.
What’s New at the IRS?
There is a new effort by the IRS for increased monitoring of payroll tax compliance. Revenue Officers will be looking over the shoulders of taxpayers who have installment payment arrangements. They will be checking for timely compliance, such as the timely making of federal tax deposits (FTDs) and the timely filing and payment of quarterly and annual returns.
This new effort by the IRS will spill over to the EDD. There will be increased efforts by the IRS to criminally prosecute chronic violators who owe large amounts of payroll taxes. The EDD however, is more interested in compliance and the proper classification of worker status and is not too keen on criminally prosecuting offenders. However, we will see an increased use of EDD fraud penalties and Worker Information Return Penalties.
In this part 2 we will discuss other ways of protecting yourself from these types of assessments by making certain that your rights to due process of law have not been violated.
When the EDD Wants You
The unit within the EDD that determines whether or not to go after responsible persons individually for payroll tax violations is the EDD’s Collection Unit. If a collector determines or suspects that you should be personally assessed pursuant to CUIC § 1735 you will receive up to two letters asking you to contact the EDD to determine if you are indeed the correct targeted individual. It has been my experience that those who respond to these letters get personally assessed! The EDD sends out many of these letters hoping to catch people like you – like a fisherman throws out a net. Those who do not respond to these letters have a greater chance of escaping a personal assessment. Of course this is no guarantee – it is only my personal, but experienced, observation.
The Settlement Process May Be Your Best Protection from Personal Assessment
I have written extensively about the settlement process and why I believe most worker status cases should be resolved through settlement. The settlement process can take a long time. This is a good thing. Your pending assessment does not become final until an ultimate agreement is a done deal and the paperwork is signed. If the settlement is not paid, the matter goes to collection for the original amount of the assessment. So much time has passed that the statute of limitations for a CUIC § 1735 assessment has all but expired except for a few current quarters. By then the EDD collection folks have no interest in any type of personal assessment.
Due Process Issues to Consider
An EDD CUIC § 1735 assessment must be sent by certified mail to your last known address. I have seen many cases where enforced collection has been taken against an individual without his or her having received a Notice of Assessment because it was not properly mailed. This assessment can be attacked and challenged for due process violations and can often be nullified and cancelled because it was illegally issued.
Sometimes Collectors Drop the Ball
Tax collectors are under a great deal of stress and pressure. Theirs is not an easy job. They do not pay as much attention to the statue of limitations for assessment as auditors do. Sometimes when the statute is about to expire or has already expired, they will simply designate a responsible person target for personal assessment without going through proper due process procedures. It is essential that all files and records be obtained from the EDD to determine if a proper assessment has been made. Don’t just pay the money! Be proactive. Obtain all records and internal documentation relating to your matter and have them reviewed by a professional knowledgeable in EDD matters. This could be one of the best investments you will ever make. A qualified professional can then recommend to you the steps necessary to attack the assessments and obtain refunds on the monies paid in the past.
In this article we have discussed only a few ways you can protect yourself from being hit with an EDD CUIC § 1735 assessment. The EDD makes mistakes and these mistakes can be as varied as the ways of human error. No two cases are ever the same. Some situations require the intervention of the Taxpayer Advocate, and some may require the intervention of an administrative law judge. The best advice I can give you is never take an EDD assessment, of any type, lying down. Get up and fight. Be proactive. Don’t rely on the EDD, or for that matter the IRS, to help you. Get your records, go through them, see if the EDD made any mistakes.
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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