The EDD and IRS
Cooperation and Information Sharing
There is much cooperation between the EDD and the IRS, and this has been so since 1991. Statistical data on closed EDD audits are extracted and given to the IRS on a regular basis. The IRS makes periodic visits to district field offices to review specific files and to discuss cases of interest with EDD personnel. A high-ranking EDD manager recently informed me that the IRS has an agent in every major field office.
Cases are called to the IRS’s attention by the use of statistical samplings on completed audits and closed files. A closed file is referred to as a “statistical.” Intergovernmental information-sharing works the other way around, too. That is to say, Sacramento will be given information on certain IRS employment tax audits for purposes of conducting an EDD examination.
California Underground Economy Project
California has long been a pioneer in detecting and attacking the underground economy. It is no secret that the IRS has taken many tips from all three major California taxing agencies concerning detection and computer programs designed to catch tax cheats. Now, the State of California, through its sales tax branch, the State Board of Equalization (BOE), is supplying sales tax records to both the EDD and the IRS. The IRS then compares the revenue reported to the IRS on their federal tax returns for the same period. Where and when discrepancies are discovered, the IRS contacts the taxpayer for an explanation. Eventually, this same information will be furnished to the IRS regarding income tax returns for both individuals and businesses. The genesis for this type of intergovernmental information-sharing was the EDD itself, a long-time pioneer in underground tax activities of industries such as construction, nursing registries and employment agencies.