How Long Does The Edd Have To Collect Taxes?
By Robert S. Schriebman
How long does the EDD have to collect taxes? There is no plain and simple answer. We have recently seen cases where the EDD is attempting to collect very old delinquent employment taxes. Some of these taxes are almost 20 years old! This is a long time when you consider that the IRS only has 10 years to collect its tax debts.
Back in 2005, the California legislature enacted, for the first time in history, a 20-year collection statute of limitations for taxes owing to the Franchise Tax Board (FTB). At that time it was widely believed that the 20-year limitation period also applied to the EDD. Apparently, this is not the case. I searched the California Unemployment Insurance Code in vain trying to find a statute similar to the 20-year collection statute applicable to the FTB. No statute exists for the EDD.
According to EDD sources, California law provides no statute of limitations for the collection of unpaid EDD tax obligations. On the face of it, this means that the EDD can try to collect such debts indefinitely. So, the answers to the clients who have very old EDD debts – yes, the EDD can attempt to collect the monies by unkind means such as a bank account levy, wage garnishment, or even putting in a keeper to seize the assets of a going business.
Generally speaking, within the first 3 years of a final EDD liability, the EDD can take enforced collection action including levies. After 3 years the EDD must record a Notice of Lien before it can engage in enforced collection. A recorded lien is good for 10 years. If the EDD wants to continue the lien process it will record a Notice of Extension of State Tax Lien. This gives the EDD an additional 10 years to collect. After 30 years the EDD has the option of erasing the uncollectable account from its internal records.
We are currently seeing some disturbing trends in EDD collection efforts involving incorporated businesses that are no longer operating or have become defunct without going through the formal process of legally dissolving the corporation. The EDD is attempting to collect these vintage liabilities from the individuals who owned those corporations even though those individuals were not personally assessed the original corporate liability. The EDD has a limited window of time to “pierce the corporate veil” and hold individuals controlling the corporation’s day-to-day fiscal affairs personally liable. This window is set by law and is ironclad. Nevertheless, the EDD is currently sending collection letters to former owners and shareholders demanding they pay ancient corporate EDD taxes. These individuals are currently being called by EDD collectors demanding payment. Out of ignorance the EDD is hoping that these uninformed souls will pony up the corporate bill.
If you, as a former stockholder of a now defunct corporation, receive a bill or a phone call from the EDD demanding that you personally pay debts that you are not legally responsible for I strongly recommend that you consult with a knowledgeable attorney in order to put a stop to these practices.
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.