California Employment Development Tax Settlements
California EDD offers taxpayers tax settlement program, where EDD and taxpayer can settle a claim for less than the amount owed. EDD can settle if it evaluates costs and risks associated with the litigation of the case and determines that it is better and less expensive for EDD to settle for lower amount than to litigate in court. The Settlements Program allows an employer the opportunity to enter into a settlement agreement to also avoid the cost of prolonged litigation associated with resolving a disputed employment tax matter.
California EDD will consider settlement offer only when when the assessment or denial of claim for refund is already under petition with the California Unemployment Insurance Appeals Board (CUIAB), meaning when taxpayer appeals assessment or denial of claim for refund. If the case is
still in progress or involves fraud, intent to evade, and/or a criminal violation(s), the case is generally not eligible for settlement.
When reviewing an offer, the EDD will consider the risk of loss for the State and the cost of litigation balanced against the benefits of reaching a settlement agreement. Issues of fairness, financial hardship and the survival of the business may be considered by the EDD to establish a settlement amount, but such issues can not be used by taxpayer as the sole reason for entering into a settlement agreement.
Upon approval of the settlement offer, the employer and the EDD will enter into a settlement agreement. All settlement agreements are subject to approval by an administrative law judge, and some require approval by the CUIAB and/or the Attorney General.
How to Apply.
To apply for settlement, a taxpayer must send a settlement offer in writing to the EDD. In the letter a taxpayer must include his or her EDD employer account number, the specific assessment against him or her or claim for refund for which taxpayer offers a settlement, date of assessment or denial of claim for refund, amount of liability involved, and the time period covered. A taxpayer must also describe the basis for offer, including the amount and terms of the offer. EDD also requires taxpayer to include an analysis of the risk of loss to the State or a reasonable estimate of the cost of litigation which appears excessive and the reason why taxpayer's offer should be considered. If a taxpayer has anyone who will negotiate on taxpayer's behalf, offer must include name, address, and telephone number of the individual authorized to negotiate settlement agreement.
If taxpayer's offer meets the criteria for a settlement, EDD will contact him or her for final negotiation and execution. If offer does not meet the criteria for a settlement agreement, taxpayer will receive a denial letter from the Settlements Office. Once negotiation begins, all information during negotiation is considered confidential and cannot be used by EDD against employer. If worker's status is at subject, then employer may be required to start reporting worker as employee.
If the disputed employment tax matter is final or the sole issue is the inability to pay, it will not meet the criteria for a settlement. However, there may be other options available to you. Section 1236 of the CUIC requires a public record for any settlement agreement that forgives more than $500 in taxes and penalties. The public records are on file with EDD’s Director in Sacramento, California.
If taxpayer believes he or she qualify for settlement, then the settlement offer can be mailed or faxed to:
Employment Development Department
Settlements Office, MIC 93
PO Box 826880
Sacramento, CA 94280-0001
Fax: (916) 653-7986
Employment Development Department Appeals
It is important to note that according to Unemployment Insurance Code ("UIC") Section 1735, an officer, owner or any person in charge of affairs of any corporation, LLC or LLP, is personally liable for the amount of the contributions, withholdings, penalties, and interest unpaid by business entity, if business entity willfully fails to pay the amount. Assessments become delinquent if not paid before they become final, and subject to a penalty of 10%. UIC Section 1135. Sections 1222 and 1224 provide that assessments become final (and delinquent) after 30 days from an assessment date, or if taxpayer petitions or appeals assessment, within 30 days of an Administrative Law Judge or Appeals Board decision date. Therefore, filing an appeal generally extends time to pay tax.
Employment tax assessment imposed by EDD under UIC is appealed before Administrative Law Judge. Employer-taxpayer needs to file a petition for review or reassessment within 30 days of service of a notice of assessment or denial of claim for refund. This period can be extended for another 30 days by administrative law judge if good cause is shown by taxpayer-employer. UIC Section 1222 states that assessment or denial of claim for refund will be final if taxpayer fails to file appeal within allowed period. The appeal must be in writing and can be mailed, shipped, fedexed, electronically transmitted by email or brought in person to the applicable office of the appeals board or even to EDD branch office.
Notices are served by EDD in person or by mail. The time for filing a petition (30 days) is extended five days if the petitioner is within the state (35 days), 10 days if outside the state but within the country (40 days), and 20 days if outside the country (60 days). UIC Section 1206. Notice is effective at the time of mailing by EDD or at the time of delivery to employer-taxpayer.
In appeal petition employer who appeals must put name of the petitioner (person or business entity), employer EDD account number, the mailing address of the employer. It is not required, but petition also may include telephone number, email of the employer, EDD case number, statement of reasons for appeal, any request for language assistance (Spanish, for example), and the signature of employer who appeals assessment of denial of tax refund.
Prior to hearing before administrative law judge taxpayer can and probably should request a copy of all documents in the audit file. EDD will charge small amount for copying file. Then taxpayer can review EDD's answer to his or her petition. After that taxpayer may find it helpful to figure under which category he or she falls (corporate officer, agent, salesman, homeworker, unlicensed worker, artist or author). Taxpayer may find it helpful to review EDD publications pertaining to taxpayer's particular industry, or talk to an attorney about that. Attorney would review relevant precedential cases applicable to this case. It is important to determine taxpayer's status to figure out what laws and regulations apply to person or business entity, which, in its turn, will help to figure out proper arguments to present on appeal. After that penalty issues can be addressed as well as statute of limitations (time period within which appeal is allowed).
For appeal taxpayer should prepare and file a pre-trial brief or memorandum of points and authorities, in which he or she must describe relevant law and apply it to his or her case in support of appeal. Taxpayer may want to locate and interview helpful witnesses, including workers previously interviewed by EDD, principals of business and management employees.
Please note that an administrative law judge may order taking of interrogatories (a set of written questions to opposing party, answers to which later can be used as evidence) and depositions (formal detailed oral questioning by a opposing party or his or her attorney, recorded and transcribed, which later also can be used as evidence). Witness should be subpoenaed (called) by so called “subpoena duces tecum,” issued by administrative law upon request by either party to appeal. Subpoena comes with mandatory declaration under penalty of perjury on pre-printed form or your own. Taxpayer can request one from Office of Appeals of the EDD. Subpoena must be delivered to witness in person with enough time before hearing for witness to attend, and any adult individual can deliver subpoena. Generally, witness can not refuse a properly prepared and served subpoena, unless witness legally objects to it. Please note that law requires certain small amount to reimburse witness for his or her expenses and time.
Then parties to appeal (Taxpayer and EDD) can stipulate as to facts – to agree on certain facts that will not be disputed by either party. After that judge will conduct a hearing. At hearing either party can testify, review case file, introduce exhibits, question opposing witnesses or party on any relevant questions, to answer opposing evidence and to impeach any witness.
For those lacking English skills sufficient to understand or present their case EDD will provide interpreters free of charge. Evidence rules are more relaxed than in regular court proceeding. Basically, any relevant evidenced can be presented. Hearing can be attended by any member of the public. Judge can also allow to file a written argument after trial. 22 CCR Section 5064.
Administrative judge issues a decision and EDD must quickly serve it on taxpayer. In decision judge will explain reasons for decision.
The California Unemployment Insurance Appeals Board (the "Board")
Decision by the Administrative Law Judge can be appealed to the Board within 30 days of the decision. Appeal must be filed timely or taxpayer will loose appeal option. Board will review matter, can allow hearing on request and sometimes may allow new evidence upon request (but generally new evidence is not allowed). Parties may file legal briefs. If Appeals Board fails to serve notice of decision on taxpayer within 90 days after taxpayer filed appeal, then taxpayer can consider appeal petition as automatically denied.
The Superior Court
Employer-taxpayer can file a lawsuit in California Superior Court if certain pre-requisites are met. First, employer must have already paid tax, interest and penalties. Then employer must file with EDD a claim for refund in writing. Claim for refund must state grounds on which the claim is founded, period covered, amount claimed and the date of payment of the amount. EDD must deny claim, then taxpayer must have a hearing by Administrative Law Judge, and then Unemployment Insurance Appeal Board must deny the claim for refund. Only after that the taxpayer can go to Superior Court. Taxpayer must file a complaint within 90 days of the service of a notice of decision by Appeals Board.
The EDD may, in writing, extend for a period of not exceeding two years the time within which court action may be instituted if written request for such extension is filed with the director within the 90-day period. UIC Section 1241(a).