ASK THE LAWYER – WHAT SHOULD I DO WHEN THE EDD TAKES MY FTB PERSONAL INCOME TAX REFUND FOR A CORPORATE EDD OLD DEBT? PART 3
By Robert S. Schriebman
This is Part 3 of a 3-part article discussing what to do when the EDD takes your refund from another taxing agency such as the FTB or the BOE. We will also discuss what to do when no refunds are involved and when the EDD contacts you and demands that you pay a huge bill for a very old relatively small liability that you may or may not have incurred back in the 1990s. We continue to get these types of calls from desperate people who do not know what to do or where to turn to when confronted with this nightmare. There are no fast and easy answers.
A Brief Review of the EDD Statute of Limitations for the Collection of Deficiencies
Unlike the FTB that has a twenty year statute of limitations for collections, the EDD has no time limit other than provisions in the California Constitution prohibiting collection of government owed deficiencies after thirty years. In other words, if you owe the EDD for an early 1990s deficiency the statue of limitations is still open.
What Proof Does the EDD Have That You Truly Owe What They Say You Owe?
The chances are that the EDD representative contacting you cannot answer the above question. He or she is simply looking at a computer screen. The person contacting you is most likely an EDD collector. The collector has been assigned the collection of the old debt by his or her supervisor.
I offer the following suggestions based upon my years of experience in dealing with EDD collectors.
What To Do?
First, do not be rude or antagonistic to the collector. He or she is just doing a job. The collector knows nothing about you personally. Be polite but firm. Ask the collector if there are any files available on your matter that can be sent to you, free of charge, by the EDD. The collector will probably not know the answer to this question. Inform the collector that you need additional time to obtain your records so that you can have a professional tax advisor go over them to determine if the debt is truly owed. Ask the collector for the tax periods involved and the amount owed for each respective period. The EDD bills on a calendar quarter-by-quarter basis.
In the event that the EDD collector, at the other end of the phone, tells you that you must make a payment arrangement before you are allowed to seek the advice of a tax professional you should remind the collector that the EDD Taxpayer Bill of Rights states that you have a right to have someone such as an attorney, enrolled agent, or accountant represent you. You can also go online and obtain a copy of the Bill of Rights. It is EDD Publication DE195.
Second, contact the EDD Taxpayer Advocate. Go on the EDD web site www.edd.ca.gov. There you will find the contact information for the Taxpayer Advocate. You can also contact the Advocate via fax at 916.654.6969. I advise writing to the Advocate and requesting a copy of all your files relating to the period(s) in issue.
I have found that the EDD Taxpayer Advocate to be very responsive to questions and requests for documentation. The Advocate’s office tries very hard to help the taxpayer.
If the documentation is available, the Advocate will find it, copy it, and send it to you free of charge.
But what if the documentation no longer exists because it was destroyed during the normal course of business?
The EDD Bill is Presumed to be Correct By Law
An assessment by a taxing agency is presumed to be correct. This presumption applies to the EDD, FTB, BOE, and IRS. This is a difficult presumption to rebut. In a recent hearing before the BOE the FTB’s presumption of correctness was clearly set forth as follows:
The FTB’s determination is presumed correct and appellant has the burden of proving it to be wrong. (Todd v McColgan (1949) 89 Cal.App. 2d 509: Appeal of Michael E. Myers, 2001-SBE-001, May 31, 2001.) In the absence of uncontradicted, credible, competent, and relevant evidence showing an error in the FTB’s determinations, the FTB’s proposed assessments must be upheld. (Appeal of Oscar D. and Agatha E. Seltzer, 80-SBE-154, Nov. 18, 1980).
What can be said about the FTB presumption of correctness applies equally to the presumption that the EDD bill you are being asked to pay is presumed correct by operation of law.
Because of the presumption of correctness of the EDD assessment, you may initially have to pay what the EDD says you owe even if they have destroyed your records.
Contacting the Director of the EDD
There is no one who has called me about the EDD’s efforts to collect an ancient debt who does not feel outraged that the EDD has taken so long, literally decades, to notify them that they owe the EDD. In the business world no civil creditor could get away with such a tactic. There are statutes of limitations that preclude a civil creditor from attempting to collect an ancient debt. Unfortunately, there is virtually no statute of limitations barring the EDD from doing so.
Not too long ago I had a client who I felt was being bullied by the EDD. I took the EDD before an Administrative Law Judge (ALJ). The judge agreed with me and threw out the EDD bills. Even after I won my case the EDD continued to send more bogus bills to my client demanding payment. My client and I had enough. I decided to contact the Director of the EDD on a one-to-one basis. It worked! The Director intervened. All the bogus bills were thrown out, and no more were issued. My client received a written apology from the Director’s Deputy.
I feel it is now time for an outraged public to write to the Director of the EDD and complain strongly that the EDD is attempting to collect a twenty or twenty-five year old debt. Your EDD files have been destroyed. The destruction of your records effectively prevents you from obtaining a refund in the event that you pay the old debt. You have been deprived of basic due process. It is just plain unfair!
You can contact the Director at the EDD as follows:
Patrick W. Henning, Jr.
Director of the Employment Development Department
P.O. Box 826880
Sacramento CA 94280-0001
Perhaps if enough people complain Mr. Henning may issue a directive that will end the EDD’s efforts to collect ancient deficiencies.
The Refund Process
If you pay the ancient EDD bill you should consider filing a Claim for Refund. You may want to assert the defense of laches. The “doctrine of laches” is based upon the basic concept of fairness. Equity aids the vigilant and not those who slumber on their rights. If the EDD waits decades to collect a debt, and allows interest to accrue to its benefit, this causes prejudice and harm to you, the taxpayer. The EDD has failed to do something which should have been done much earlier to enforce its rights at the proper time.
Please review my articles. You will find at least one or two articles that deal with the concept of laches against the EDD.
The rules for filing a refund claim with the EDD are set forth in CUIC § 1178. There is no special form for filing the claim. The refund claim should state the following items as a minimum:
- Taxpayer’s name and address
- Taxpayer’s social security number
- The amount of the claim
- The reason for the claim
- A copy of the FTB notice should be attached to the claim
- The claim should be signed by the taxpayer and have all personal contact information
The claim must be filed within sixty days of the date that the taxpayer was notified that the FTB handed over the refund amount to the EDD.
Please see Part 2 of this series for more information about your rights during the refund process.
An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.
As a trusted EDD attorney, has successfully dedicated more than 30 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 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 and 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.