PAYROLL TAX AUDITS

Getting a notice from the California EDD or IRS can be worrisome and stressful. What went wrong with your payroll filing? You may not have the answer you are looking for immediately, but a payroll tax audit attorney can make all the difference.

GET TAX HELP

HELPING BUSINESSES WITH PAYROLL TAX AUDIT PROBLEMS

REPRESENT YOU DURING THE AUDIT

Don't worry if you are unfamiliar with the EDD's audit process. We can represent you at every stage and communicate with the IRS and EDD on your behalf. We work with the auditors across multiple cases; hence, we know how to handle even their most unreasonable demands.

NEGOTIATE A RESOLUTION

We will negotiate with the IRS or EDD on your behalf to reach a favorable agreement. This may include negotiating a settlement or payment plan for unpaid taxes or disputing any discrepancies or errors found during the audit.

APPEAL THE EDD'S DECISION

If you are unsatisfied with the audit's outcome, we can help you appeal the decision. We will gather the necessary paperwork and initiate a more powerful appeal without just restating the arguments made in your initial defense.

Running a business is not a bed of roses; occasionally, money gets tight. Once this happens, some businesses try to make ends meet by deducting money from the payroll tax withholdings. Although this money might be channeled to other uses like paying utilities and rent, it also attracts more debts and penalties. When this habit starts, it's tricky to get out of it, and bear in mind that the Employment Development Department (EDD) and IRS do not grant immunity to businesses using their payroll withholdings to remain operational.

This is not the only problem businesses have when it comes to payroll tax debt. Employers get into trouble with the EDD and IRS for classifying workers as "Independent contractors" instead of employees. The case ruling on Dynamex Operations West, Inc. v. Superior Court of Los Angeles shows the EDD is becoming unforgiving when performing these investigations, which are basically worker re-classification audits. All the people you worked with in recent years could be subject to audits, resulting in massive liabilities for which you might be personally accountable.

Now, the most unfortunate thing is that there is no uniformity in enforcing some of these regulations. Most business owners want to follow the law and pay the correct amount of payroll taxes, but EDD gives a lot of discretion to their auditors, and the outcome seems to be a disorganized approach to enforcing the law.

Save your business trouble and money by getting informed from the start. Contact Brotman Law today and get professional help.

The EDD and the IRS use a complex 20-factor test to assess whether a worker is an independent contractor or an employee. Payroll tax attorneys have a thorough understanding of the worker classification test and will help you assemble evidence to convince the authorities that your workers are classified in the appropriate category.
  • Payroll audits are not "random." Because California has limited resources, it tends to target businesses and industries that it is confident it can get an adjustment out of.
  • If you are being audited for payroll taxes and have independent contractors, your definition of an "independent contractor" is likely different than EDD's definition. The law is not in your favor.  
  • The biggest issue in a payroll tax audit is the EDD's penalty structure. We have seen and it is common in payroll tax audits to see penalties assessed of more than 5-6X the amount of tax owed. 
  • Everyone who is an employee of a company by definition performs some level of service and should have some measure of taxable wages. 
  • Very few attorneys, including tax attorneys, practice state payroll tax law because it is incredibly nuanced and requires a working knowledge of California tax procedure.
It is the simplicity of the information being asked for that is deceptive for clients and businesses are disadvantaged when going up against auditors with years of experience. Couple that with a different appeals process (California payroll tax audits fall under the jurisdiction of the California Unemployment Insurance Appeals Board) and it is easy to see where the risks are.

Our aim in the California payroll tax audit representation process, other than getting you the best possible result, is really about providing consistency and predictability to something that is highly susceptible to the whims of the individual auditor.

Managing risk for our clients in this area is about building confidence in how they are structuring their workforce and in making sure that they are paying the proper amount of tax. 

Over the years, our largest grievance with the California state payroll tax audits has been their arbitrary and capricious application of harsh penalties and the way that they sometimes hide behind the CUIAB appeals process in pushing forward sloppy work.

Seeing potential penalties 5-6 in excess of the amount of tax owed and working hard at various levels of the state government to erase these penalties has caused us to rethink our approach to payroll tax audits.  

We want to make sure that our clients are adequately informed about the risks associated with California payroll tax audits and adequately prepared to defend against that risk.

We have developed a system that is straightforward, easy to follow with the guidance of our team, and designed to get you out from under the audit as quickly as possible. 

 

Luckily, our firm sees the real playing field with respect to the issues that arise in a payroll tax audit and has wide experience dealing with district offices all over California. Together we can put a plan in place for getting you through the audit and avoiding the very serious penalties associated with a California payroll tax audit.
GET TAX HELP

DO I NEED A TAX ATTORNEY?

When you seek our help, you can rest assured that you are taking the right steps toward mitigating your payroll tax liability.

UNDERSTANDING OF THE PAYROLL TAX LAW

A payroll tax audit process is quite involving and requires a mastery of both the California EDD procedures and employment tax laws. We are knowledgeable in these fields and do not have to reinvent the wheel on IRS or EDD payroll tax audit defense.

PROTECT YOUR INTERESTS BEYOND THE EDD AUDIT

We anticipate the effect of the EDD findings on your IRS tax returns and any modifications that may need to be made. You have peace of mind knowing that you're getting integrated representation across multiple disciplines.

TAILORED REPRESENTATION

We appreciate that no two businesses are the same when it comes to payroll tax audit representation. Thus, we listen and design strategies based on your needs.

YOUR PAYROLL TAX ACTION PLAN: STEP-BY-STEP

01

THE INITIAL DIAGNOSTIC

Your first step in the process is to meet with our concierge team, who will collect some basic information that our senior legal team will use to sketch the four corners of your tax action plan. For any documents you wish to submit to us, our team will provide you with a customized link to upload your documents utilizing bank-level security.

The initial consultation is offered at no cost to you. It is our responsibility to analyze your situation and determine whether you are a good candidate to take the next step in our process. The last thing we would want is for you to invest in the tax action plan process and not get the most out of it.

After your initial diagnostic, our team will make an initial recommendation and connect you with our senior legal team or another resource to assist you.

02

MEET WITH OUR SENIOR LEGAL TEAM

We start the meeting knowing that there is something about your situation that has caused the State to target you for a Payroll tax audit. The ultimate goal of our meeting is to ascertain what put you on the radar and how to get you off it.

The advantage of a payroll tax audit vs. other types of audits is that the process for auditing returns is basically a straight formula.

1.Did you have the correct amount of taxable wages?

2.Did you pay the correct amount of tax?

3.Are there other items in your financials that should be reclassified as taxable wages (thus, you owe the government more tax)?

4.Do you have workers/independent contractors that should have been reclassified as employees (and thus you owe the government more tax)?

5.Based on your conduct, should the business be subject to penalties?


So, because we have the auditor's playbook, we can put you through a rough simulation of what you will experience in the audit. This is the best way to avoid liability because we can take a practice run examining areas where there might be potential risks and resolving issues before putting them in front of the auditor. By the end of the meeting, we will outline a full plan for your payroll tax audit defense and share our full recommendations with you.

03

OUR PLAN DELIVERED TO YOU

After you sit down with Sam or our senior legal team, we will work to finalize your plan in writing and deliver it to you. There is no further obligation to us at this point, and your action plan comes with a full 100% money-back guarantee. If we do not deliver value for you, you do not pay for your plan: plain and simple.

But be rest assured, by having a plan, even without full representation, you will see a significant impact on the start of the audit, which will be critical in determining the outcome and maximizing your defense.

04

EXECUTION

If you give us the go-ahead, we will begin implementing your customized plan. Actually, by the end of having us deliver their plan, most clients choose to retain us for some measure of services going forward. We are happy to be a role player and to serve as a guide, or we can take the audit off your hands and manage everything from beginning to end. It is entirely up to you.

We like to say in the firm that we are not in the habit of making decisions for people, but rather we try to provide enough information for business owners to make their own decisions. That is not to say that we leave you to do the heavy lifting (quite the contrary, our recommendations are usually precise and candid), but the control over the matter should always rest with the client. We always keep you in the loop and break things down step-by-step.

GET TAX HELP

BOOK A FREE ASSESSMENT CALL

Set up a quick call with our firm's concierge to see if we'll be able to help you. The whole process will take 10 minutes or less. If your matter is urgent we will also help to expedite a meeting with Sam.

NEXT STEPS


Next, you will meet with the Firm Owner and Director of Legal, Sam Brotman for your consultation. Any information that you can provide or any documents you would like Sam to review are always helpful, so we can ensure that you get as much value as possible.

WE HAVE HELPED THOUSANDS OF PEOPLE JUST LIKE YOU SAVE OVER $1 BILLION IN TAXES.

STILL HAVE QUESTIONS?

Tax law can be complex, confusing, frustrating, and even scary. We're here to help!

What is likely to trigger an EDD audit?


Any of the following scenarios can trigger an EDD audit:

•A worker reveals that they are an employee rather than an independent contractor.

•Late payment of payroll taxes

•Errors found in statements, records, and other documents

•Delayed or canceled payroll due to technical difficulties

•Cash salary payment

How does an EDD audit start?


The first sign of an EDD audit is when you get a notice from the EDD inquiring about your records. This shows that your business has been identified for an audit focusing on payroll taxes. Contrary to the IRS audit notice, the EDD one can be inconspicuous, and some business owners may not even be aware they are being audited.

Does the EDD at any time check with the IRS?


Sometimes, after concluding the EDD audit, the State might avail your information to the IRS. This could lead to an additional audit; thus, it is advisable to enlist the services of an attorney who is proficient in handling both federal and State controversies.

What is the period covered by the EDD audit?


The EDD usually covers a 3-year period during an audit. However, in some instances, such as when no tax returns were filed, the EDD audit period may be longer.

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