REMOVING AN EDD PENALTY – ABATEMENTS AND REASONABLE CAUSE Part II
By Robert S. Schriebman
This is Part II of a two part article discussing the removal and abatement of EDD penalties based upon due diligence or reasonable cause. In Part I we discussed the standards the IRS uses to abate penalties through its Internal Revenue Manual, Chapter 20. The IRS uses a reasonable businessperson standard – this comes down to the exercise of ordinary business care and prudence. The IRS does not require any super-human action or insight.
The EDD, on the otherhand, relies on due diligence standards set by Precedent Decisions decided by the California Unemployment Insurance Appeals Board (CUIAB). Specifically, CUIAB decisions P-T-23 and P-T-449.
The standards established in P-T-23 are these:
The Unemployment Insurance Code does not define the term “good cause.” The courts have held that it cannot be determined in the abstract, but it depends largely upon the facts and circumstances of each case. Bartlett Hayward Company v. Industrial Accident Commission (1928), 203 Cal. 522 at page 532, 265 Pac. 195 at page 199; California Portland Cement Company v. California Unemployment Insurance Appeals Board (1960), 178 Cal. App. 2d 263 at page 274, 3 Cal. Rptr. 37 at page 44. It imports something more than a mere excuse. It must be a substantial reason that affords a legal excuse accompanied by that degree of diligence which men of ordinary prudence would have used under similar circumstances. Zurich General Accident & Liability Insurance Company v. Kinsler (1938), 12 Cal. 2d 98 at page 102, 81 P. 2d 913 at page 915; Evelyn, Inc. v. California Employment Stabilization Commission (1957), 48 Cal. 2d 588 at page 591, 311 P. 2d 500 at page 502.
The standards established in P-T-449 are these:
The proper standard is contained in Appeals Board Decision No P-T-23 where the Appeals Board stated:
“[Good cause] imports something more than mere excuse. It must be a substantial reason that affords a legal excuse accompanied by that degree of diligence which men of ordinary prudence would have used under similar circumstances.”
Good cause clearly will lie where the circumstances causing the delay are clearly beyond the control of the employer, or where the delay is due to mistake or inadvertence under circumstances not reasonably foreseeable by the employer. Put another way, good cause exists where the delay is not attributable to the employer’s fault. Thus, catastrophic occurrences such as fire or earthquake or delays attributed to the postal service would clearly five the employer good cause.
Whether you use the EDD or IRS standards of penalty abatement, my philosophy is “never take a penalty lying down.” Penalties should be contested whenever there is any chance you may have an argument that works in your favor. If you do not ask for abatement – you do not get an abatement; it is as simple as that.
If the IRS denies your request for penalty abatement you have an administrative “chain of command” that you can follow to get an impartial hearing. Unfortunately, the EDD has no such program. If you are turned down you can only file a petition with the CUIAB and take you matter to a higher authority. If you elect to file a petition with the CUIAB I recommend it have the following information:
- The petition must be in writing and sent to the CUIAB by registered or certified mail, return receipt requested. You may also use a company such as UPS or FedEx.
- A petition should state your name and address.
- A petition should state the tax periods and amounts involved.
- Your petition should request a formal hearing before an administrative law judge.
- Your petition should make a very clear statement of why you believe your penalties should be abated.
- You should attach to your petition true copies of your initial Claim for Refund and the EDD’s Denial.
- Your claim should be signed and dated.
©Robert Schriebman 2013.
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.