ASK THE EDD LAWYER – WHY AM I GETTING THESE EDD ASSESSMENT NOTICES WHEN I HAVE NEVER BEEN AUDITED BY THE EDD?
By Robert S. Schriebman
March 1, 2016
Have you ever received an EDD Notice of Assessment (NA) but have never been audited by the EDD? Every so often we get a case in the office that is both disturbing and very stressful to the client. My client received an EDD Notice of Assessment for only one quarter of a specific year. My client told me that to the best of his knowledge he has never received an audit notice. I filed a timely petition with the CUIAB and I prepared the client’s case for resolution. After a couple of months my client received another NA for another quarter of that same year for the exact same amount as the previous NA. Again I filed a timely petition and prepared his case. And then it was “Groundhog Day” or to quote the late Yogi Berra it’s “Deja vu all over again.”
Without ever auditing the taxpayer the EDD continued to send the same dollar amount NA quarter after quarter. There were six NAs in all.
What causes this strange behavior from the EDD and what can be done about it? How can you stop the EDD from continuously causing an innocent taxpayer stress, anxiety and unnecessary professional fees? Before I answer these questions, you must know that unlike the Taxpayer Bill of Rights for either the FTB or the BOE, there are no provisions for the recovery of professional fees against the EDD no matter what the EDD does.
What Causes The EDD To Repeatedly Issue Notices of Assessments?
There are several situations that can cause the EDD to issue multiple NAs. This can happen during the audit process or it can happen when there is absolutely no audit at all.
The Audit Process
When a taxpayer is being audited by the EDD the audit can cover three or more years and can drag on for quite some time. If the statue of limitations (S/L) for assessment of an early quarter is about to expire the EDD usually asks the taxpayer or a representative to grant the EDD a written extension of time for making an assessment for that specific quarter. If the extension request is refused the EDD may issue an NA for the expiring quarter and continue the audit process for open quarters. Once the S/L expires for a specific quarter it cannot be brought back to life except in rare circumstances such as fraud. This is the way things usually work.
Outside Of The Audit Process
There are exceptions to the way things usually work. For example, if a former 1099 worker files for UI benefits and gets them, the EDD may assess the “former employer” with the payroll taxes that should have been collected and paid over to the EDD during the course of employment. By way of illustration, suppose 1099 recipient Jones works one quarter, is terminated and files for UI benefits. The EDD may issue an NA for one quarter payroll taxes for Jones.
The problem starts after Jones is gone. Somewhere in the EDD system, a place that is not even known to judges, there is an EDD computer programmed to issue NAs. This computer does not understand that Jones is now gone. The computer continues to issue NAs but no one has put the brakes on this machine.
The multiple NAs problem can also occur when an employer files its last quarterly payroll tax return, goes out of business, but never informs the EDD that the return is final. The computer recognizes the fact that no returns have been filed since the “final return.” The computer then issues repeated NAs for subsequent quarters based upon the data in the last filed return.
Each and every NA issued by the computer requires the filing of a timely petition with the CUIAB. If a timely petition is not filed each NA is deemed defaulted. Eventually the defaulted NAs wind up on the desk of an EDD collector. Each and every issued NA must be taken seriously.
How To Deal With The Problem Of Multiple Estimated NAs
The first thing to understand is that these multiple NAs have one thing in common – they are estimated assessments. This means they cannot be settled as a normal EDD audit assessment may be resolved.
One approach that may be successful is to contact the EDD Taxpayer Advocate. The Advocate may assign someone to handle your matter.
On rare occasions the NAs may be caused by the employer’s failure to respond to EDD audit notices. In that event it may be possible to work with the specific EDD audit office that was originally assigned the case. This is the usual situation when NAs have been issued as a result of a UI claim. The audit office manager will assign an auditor to try to resolve the situation. This may require the filing of quarterly tax returns for each quarter that an NA has been issued. However there is a hidden trap in filing late returns. These returns may be audited under the normal 3-year S/L set forth in CUIC §1132.
In the matter involving Mr. Jones above, the employer had no workers after Jones left the company. In order to stop the NAs we filed several quarterly returns. We still have to wait for the 3-year S/L to expire. Yes, we may get audited.
In the matter involving the company that went of business, we had to appear before a judge and prove that the company ceased operations right after the last quarterly return was filed. We won our matter but the judge expressed his frustration with the EDD in its refusal to stop the flow of NAs even after the taxpayer sent in the same evidence to the EDD proving it was no longer in business.
The multiple NA scenarios cause much consternation. It is stressful; the taxpayer must take care to protect its rights each and every time an NA is issued. The process can be expensive to resolve. There is no reimbursement for professional fees and costs associated with fighting this type of matter. I can tell you from my experience that eventually the EDD will “get it” and stop the flow of these bogus NAs.
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 209