EDD AUDIT – What To Do When You Are Unhappy With The Results
By Robert S. Schriebman
Materials from Mr. Schriebman’s book entitled California Taxation Practice and Procedure,
published by Commerce Clearing House – CCH.
At the conclusion of an EDD audit you will receive a document entitled Proposed Notice of Assessment. You will be invited to have a conference with your assigned auditor and his or her supervisor. These conferences rarely result in a reduction of the proposed assessment. In fact, the assessment may be increased because of information you will divulge should you take advantage of the contents. I rarely attend a pre-assessment conference with the EDD preferring to exercise my options when the final Notice of Assessment is issued which usually occurs about one month after the issuance of the Proposed Notice.
It is a rare day when I find someone happy about the results of an EDD audit. If you are one of these individuals, you should consider paying the assessment, treating your workers as employees, and simply moving on.
Most employers however are not pleased about paying an EDD assessment and would like to know what options are available should you wish to contest the final Notice of Assessment. These days a Notice of Assessment may contain several levels of penalties that you might wish to challenge along with the underlying deficiency.
Being on the receiving end of a large EDD assessment, especially in today’s economy is stressful, not to mention that you are certain that whatever you said to the auditor in your defense was ignored or used against you. You may feel that you “cannot fight City Hall” but you can and you should. What options are available to you if you want to fight the EDD?
File a timely petition with the California Unemployment Insurance Appeals Board (CUIAB). When you are issued the final Notice of Assessment you will be instructed that you have only 30 days from the date of the Notice to file a petition. There is no one form available to petition the CUIAB. You may send a letter simply requesting a hearing and attaching the Notice of Assessment. In the letter you should set forth your reasons why you disagree with the EDD’s determination. We professionals file a more formal petition that is structured to set forth our client’s legal position and defenses. Regardless of what form you use, send your petition to the Board in such a way that you have proof that you have timely filed it. Certified or registered mail will do nicely or you may use an independent service such as UPS or Federal Express.
If you fail to timely file a petition, you are in for all kinds of headaches. Your matter will be deemed conclusive by the EDD and they will be entitled to collect the assessed deficiency plus accruing interest. This could place you in harm’s way. You will be subject to liens and levies. Your matter may also be turned over to the IRS where the IRS may issue a “me too” assessment but at a much higher rate.
Timely filing a Petition prevents the EDD from collecting on the assessment.
The EDD policy and regulations prohibit enforced collection during the pendency of a CUIAB matter. This means no liens, levies or seizures are allowed. However a petition does not stop interest from accruing on any unpaid proposed assessment.
Once you file your Petition you may elect to attempt to settle your matter or have a formal hearing on the merits. Once your petition is filed, you may consider taking advantage of prehearing settlement. The EDD maintains a settlement office that you can contact in an attempt to resolve your matter without the expense or stress of a formal hearing before an administrative law judge (ALJ). If your settlement negotiations break down or you are unhappy with the proposed settlement, you have a right to go before an ALJ for a full hearing on the merits of your case.
I have written an article on this website that discusses in depth the EDD settlement process. You may wish to read it before submitting a settlement proposal.
File your Petition, pay the assessment, and turn your case into a refund proceeding. There is a little known rule that fully paying your EDD assessment during the pendency of your petition turns your case into an automatic claim for refund. You have a right to have your refund matter heard in the Superior Court. But first you must exhaust your administrative remedies. Failure to do this will cause your refund suit to be dismissed. The exhaustion process means that you must bring your matter before an ALJ and have a hearing on the merits before you are allowed to file your case in the Superior Court.
There are many roads available if you are unhappy with your EDD assessment. My personal preference, after filing my client’s petition is to approach the EDD settlement office and try to get the best deal I can for my client. Someone once said that a good settlement is better than a good lawsuit. Wise words indeed.
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.