Ask The California Employment Tax And Payroll Tax Attorney – Releasing An Edd State Tax Lien
By Robert S. Schriebman
2023
Introduction
Periodically I get calls asking for my assistance to remove or release an EDD Notice of State Tax Lien. Most of the callers want the lien removed because it has negatively impacted their credit rating or prevented them from obtaining a loan, financing or keeping the entire proceeds from the sale of real property. It is difficult and often complex to obtain a release of any tax lien especially those from the EDD and the IRS. Understand that a tax lien cannot be removed just because it is interfering with your lifestyle or the way you do business. This article will discuss the more available avenues to releasing an EDD lien. First let’s look at the EDD’s basic lien law.
The Law: CUIC § 1703
Section 1703 of the California Unemployment Insurance Code provides:
If any employer or other person fails to pay any amount due to the EDD at the time that it becomes due and payable, that amount (including penalty, interest and costs), shall be a perfected and enforceable tax lien.
Releasing an EDD State Tax Lien
Below are set forth the more popular avenues for obtaining a release of an EDD Lien for EDD assessments against corporations, LLCs, sole proprietorships or responsible person assessments issued pursuant to CUIC 1735.
Full Payment of the EDD Deficiency
Full payment means exactly what it says. The tax portions, penalty portions and accruing interest, and collection costs must be fully paid before a lien will be released. A partial payment of only the tax portions consisting of unemployment insurance (UI), state disability insurance (SDI), employment training tax (ETT) and the personal income tax (PIT), by themselves will not secure a lien release if the penalties and interest are also not paid. (Masi v. Nagle, 5 Cal. App 4th, 608, (1992)). The Masi case has been applied to refund claims, and the same rules apply in the refund process, i.e., all taxes etc., must be fully paid before a valid refund claim may be filed.
Expiration of the Statute of Limitations
This is somewhat misleading because the body of EDD law and statutes have no statute of limitations for the collection of EDD taxes. People often get confused between the FTB collection statute and the EDD non-collection statute. The FTB has a 20-year collection statute; the EDD has none. Does this mean the EDD has forever to collect a deficiency? No. The California Constitution has a provision used by the EDD as its yardstick for collection. The Constitution has a 30-year collection statute for State-owed debts. Therefore, the EDD has 30 years to collect a deficiency from the time the assessment becomes due and payable.
Offer in Compromise (OIC)
An Offer in Compromise, is the EDD’s way of saying, “Let’s Make a Deal.” Under limited circumstances the EDD may accept a smaller amount as payment in full. This usually occurs when the taxpayer can clearly demonstrate the inability to fully pay what’s owed in a reasonable period of time. The taxpayer wishing to make an OIC, must prove to the EDD that he/she is no longer operating the same business. “Same business” does not mean a previously defunct business when the taxpayer elects to operate under a new identity or new entity. By way of example, Jack had his own construction corporation. The corporation had a huge EDD assessment that was also assessed against Jack as a responsible person pursuant to CUIC § 1735. Jack dissolved his corporation and went to work for a competitor as a W2 wage earner. Jack’s OIC was accepted because he could prove that he was no longer operating the same business.
The primary benefits of an accepted OIC are twofold: you wind up paying the EDD pennies on the dollar; and the Notice of State Tax Lien is released once the offer amount is paid in full.
Improper Lien Filed After a Timely CUIAB Petition
It does not happen very often, but sometimes the right hand of the EDD does not always know what its left hand is doing. A clear example of this occurs when a timely petition has been filed with the CUIAB, but the EDD goes ahead and issues a Notice of State Tax Lien after the petitioner’s timely filing. If a timely petition is of record, it is improper for the EDD to engage in any collection activity while the matter is pending with the CUIAB. A lien notice is considered EDD collection activity.
Due Process Issues with Assessments
In a nutshell, due process means that the taxpayer has been given proper notice and opportunity to be heard on the issue. For EDD assessments, due process means that the employer has been properly notified by the Notice of Assessment (NA) being sent to his/her last known address. Sometimes the EDD will not follow proper notice procedures. For example, the NA was sent to the employer’s old address without the EDD bothering to determine the employer’s current address. Another example of a due process violation on the part of the EDD is its failure to send the NA to the employer’s representative, assuming the EDD has in its files a proper Power of Attorney. Due process failures often mean a late filed petition. Late petitions require a judge hearing to determine if the late petition will be deemed timely filed. In the meantime, however, the late-filed NA becomes due and payable as far as the EDD is concerned. The EDD files a Notice of State Tax Lien and commences enforced collection action, such as a bank account levy.
Will the EDD release the lien and stop collection action when a petition is filed late? Not necessarily. Everything depends upon the facts and circumstances.
Conclusion
Obtaining a release of an EDD tax lien is not a simple process. You cannot request a lien release just because the lien is inconvenient, hurts your credit rating, or the resulting collection efforts empties your bank account. A smart employer, wishing to obtain a lien release, is well advised to consult an experienced EDD tax professional.
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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written 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.
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.
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.
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