ASK THE EDD LAWYER – WHAT IS THE CUIAB’S CURRENT POLICY ON HEARING REFUND CLAIMS ON WORKER INFORMATION RETURN PENALTIES? – PART 5
By Robert S. Schriebman
This is Part 5 and the final part of our series of articles discussing the due process constitutionality of the CUIAB’s current position of refusing jurisdiction over WIRP refund matters. In Parts 1 through 4, I discussed legal issues on due process of law, cited and explained key US Supreme Court cases and reached the conclusion that the CUIAB clearly needs to change its current way of thinking.
In this Part 5, I will take a look at the real world of filing and pursuing a refund lawsuit against the EDD in the Superior Court. I will contrast the expertise of Board ALJs when compared to a generalist Superior Court judge. My experience, and those of many of my colleagues, shows that Superior Court judges were rarely fond of tax courses when they went to law school, and most of them, if they had their choice, would prefer passing on hearing a tax case.
Finally I will end this series of articles with giving you my concluding thoughts on the issue of due process in CUIAB WIRP refund matters.
The laws concerning WIRPs are found in CUIC §§ 13052 and 13052.5. Most of you who have followed WIRP articles on this website, know that a WIRP assessment must first be paid before it can be challenged. This series of articles will focus upon one small subsection of 13052.5 subsection (d). This subsection states as follows: “(d) Sections 1221 and 1222 of the Unemployment Insurance Code shall not apply to assessments imposed by this section.”
CUIC §§ 1221 and 1222 provide for administrative relief when the EDD issues a Notice of Assessment. By timing filing a Petition with the CUIAB a taxpayer does not have to pay any portion of the proposed assessment other than the WIRP portion. The WIRP must be paid promptly upon assessment. The legislature intended to punish employers who failed to issue proper and timely W2s and 1099s. A form of punishment is the absence of prepayment administrative relief. However, these statutes are absolutely silent about an administrative hearing after the WIRP has been paid.
The current position of the CUIAB is that it is not allowed to hear a WIRP matter that has only been assessed but not paid. That position reflects the clear language of subsection (d). But wait, the current position of the CUIAB is that it is not allowed to hear a WIRP matter that has been paid and where the taxpayer-employer seeks a refund!
Before discussing the specifics of the legal issues, it will be helpful to you to once again review the facts involving a typical EDD WIRP assessment scenario.
The Case of XYZ, Inc.
XYZ, Inc., (XYZ) owns and operates a widget manufacturing operation in San Diego, California.
The EDD conducted a worker status audit for the years 2014, 2015 and 2016. As a result of the audit, the EDD issued a Notice of Assessment for these years. A portion of the Notice of Assessment contained a Worker Information Return Penalty issued pursuant to CUIC § 13052.5 in the amount of $60,000.
On January 30, 2017 XYZ fully paid the CUIC § 13052.5 penalty.
On February 3, 2017 XYZ filed a timely Claim for Refund (Claim) with the EDD pursuant to CUIC §§ 1178 and 1179.
The EDD did not respond to XYZ’s Claim; the Claim was neither denied nor was the Claim granted. Pursuant to CUIC §1222, after the passage of 60 days, XYZ deemed, by operation of law, that the EDD denied its Claim.
On April 17, 2017, XYZ filed with the CUIAB its Petition to Protest the “Deemed Denial” of Claim for Refund. The CUIAB has refused to entertain or hear the Petition for Refund because its current position is that it has no jurisdiction to hear refund claim matters involving WIRPs. XYZ has been advised that it must now file an expensive and time consuming lawsuit for refund in the Superior Court.
A Refund Suit In the Superior Court Is Not Really An Adequate Remedy For The Small To Medium Sized Business!
The EDD may argue that access to the Superior Court in a refund suit constitutes adequate due process in post-refund matters. It does not.
The current policy of the CUIAB in denying procedural due process in CUIC § 13052.5 matters leaves small and medium sized taxpayers to seek relief only in the Superior Court. This is a long and expensive process. Most taxpayers cannot afford these expenses and are economically compelled to “vote with their feet” and walk away from going to the Superior Court. This effectively amounts to a forfeiture of a potential refund. Only the very large and powerful can stay the course.
Superior Court judges are generalists and not specialists in employment and withholding tax matters. Most Superior Court judges are not competent or experienced to hear issues involving Worker Information Return Penalties assessed pursuant to CUIC §§ 13052 and 13052.5. The more important the interest at stake, the greater the efficiency of the administrative process must be. See Matthews v. Eldridge (1976) 424 US 319. When the issues are complex and require difficult factual determinations, nearly the full panoply of procedural safeguards in civil cases may be required. See Morrissey v. Brewer (1972) 408 US 471, 488-489.
An administrative review process is both timely and fair. Access to the CUIAB is generally faster than the current multi-year backlog in the Superior Court. ALJs are specialists in employment and withholding tax matters and deal with them on a daily basis. On the other hand, a Superior Court judge may hear less than a handful of tax cases in his or her entire career on the bench.
A trial in Superior Court, especially in employment and withholding tax matters may require two attorneys, one experienced in state civil trials, the other a tax specialist. At the CUIAB, however, the taxpayer usually only needs one representative and that person is not required to be an attorney or CPA.
Once the CUIAB takes jurisdiction of a refund petition, the matters may be settled within the EDD as non-refund petitions often are. The settlement process is speedy and is a great benefit to both taxpayer and the CUIAB.
It is clear that the CUIAB has not given CUIC § 13052.5 (d) its plain and literal meaning.
Interests that are deemed fundamental rights for purposes of procedural and administrative due process and interests specifically mentioned in the Bill of Rights are entitled to the highest weight in applying the procedural due process balancing test. See Freedman v. Maryland (1965) 380 US 51, 58-59.
A taxpayer has a right to go to Superior Court, but it is a “hollow right” that does not afford the taxpayer a fair, objective, and timely remedy. It is contrary to the McKesson requirement of meaningful backwards-looking relief to rectify. Because a Superior Court Judge cannot consistently provide the same level of remedial protection that an ALJ can provide, the Superior Court remedy is an inadequate remedy for post-deprivation tax relief.
When an administrative review process is in place, the remedy is both timely and fair. It is timely because there is a set window for a formal denial of a refund claim, then another period of time to administratively appeal that denial (CUIC § 1224). There are set time limits in place which allow the EDD to entertain a settlement outside of the CUIAB (CUIC § 1222). When a taxpayer’s funds are being held by the EDD, the administrative process offers a timely resolution for a taxpayer who may be experiencing financial distress after being deprived of the taxpayer’s property.
Not only should taxpayers be given administrative hearing rights in CUIC § 13052.5 refund matters, the nature of the taking, by the EDD, and the absence of pre-payment administrative relief, warrants that these types of penalties be given hearing priority within the CUIAB.
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.
Web Site Article 280