Chapter 04

California Payroll Tax Lawyer Representation in an EDD Audit

What are the pros and cons of representing yourself in an EDD audit? What about having somebody from your company or your CPA represent you? What about a tax attorney?

The first thing I would like you to consider is that tax attorneys handle audits all the time — at least those tax attorneys who practice in tax controversy and who deal with state payroll tax issues. Our firm is familiar with the territory and we know how to handle them very well.

Some CPAs have a good familiarity with payroll tax audits because they do them a lot but most do not. Most CPAs do not get involved in controversy matters that often, and they generally defer to a tax attorney or to somebody else.

CPAs do not necessarily understand a lot of the procedural elements that come with EDD audits. For example, if there is a disagreement in the audit and the EDD audit has to go into the appeals process, your CPA may not be the best person to handle it. By far, if I am going to go into appeals on an EDD matter, I want to be the person who handled the audit.

The reason for that is while I am going through the audit as a tax attorney, I am working to build the record and treating every case like it is going to go into appeal. I am finessing every line in that audit report and trying to get the best possible outcome in your favor.

On the other hand, if you are going to have somebody from your company represent you, you can do that. That is obviously the lowest-cost option. The problem with not having a third-party representative is that the EDD auditor can ask you direct questions, and that representative is going to be able to avoid those questions. If you have somebody from your company represent you, they are not going to be able to avoid questions.

If you represent yourself in an EDD audit, you are exposing yourself to risk. What I recommend as a first step, whether or not you decide to handle your own EDD audit, is at least go talk to a tax professional and get some sort of diagnosis.

Understand what the risk is. Understand what the playing field is. Then if you feel confident enough that the matter will resolve itself, then, by all means, go forward and do that.

There is a lot of value that we can provide even by just handling routine issues or at least serving as the face during the audit meeting. Oftentimes, we are able to control the presentation, move the auditor through the process much more efficiently than either someone from your company or a CPA because we know the process better than those individuals.

Those are the pros and cons when deciding who to have as your representative in your EDD audit.

Working With Brotman Law

If there is one thing that we do really well in this firm, it is handling payroll tax audits. We have a lot of experience in dealing with the EDD through all of their district offices. Over the course of doing this, we have really developed a body of experience.

The nice thing about our firm is all of our team has a really good understanding for how things play out at different levels in the process. With an EDD audit client, we are not only pre-auditing them to present information to the auditor, but we are constantly thinking about how things are going to play out in front of an administrative law judge and we are really working to build a case from the beginning.

Hopefully, we never get there. Hopefully, we come to an agreed-upon audit with zero change and we are done. The best thing for us is if we go in and we layer the audit and prepare for the worst, then ultimately, we get the best results.

We are really good at figuring out what our client's liability is at the beginning of this and then mitigating that as much as possible.

There are several things that we do from a tactical perspective, depending on who the client is, on how much payroll they have, their reliance on independent contractors, and the risk in order to really shave that down and mitigate those issues.

We are really tough as an advocate in EDD audits, but we are also very well-liked and very well-respected by the auditors because they know that our level of preparation and our level of organization in moving through the audit are unmatched. We really focus in and get these audits to a point where we are delivering the best results for our client.

I would encourage you to sit down with one of our senior attorneys and myself, let us walk you through your particular EDD audit situation, and we can at least develop a plan. If you decide to take that plan and go somewhere else or not retain us, no problem.

At least you will have a good understanding of what your risk is. You will understand how the EDD is going to look at you from a penalty perspective and how they are going to look at your contractors, and then you can make your own decision on how you want to proceed and what the best course of action is in the audit.

I have a very strong level of confidence in our team and our firm with payroll tax audits and with handling the EDD in particular, and I encourage you to interact with us and learn more about how we can help you in your EDD matter.

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What Will Brotman Law Charge to Defend My EDD Audit?

Well, it depends. Let me give you some of the factors that drive cost in a payroll tax audit. The actual preparation process is not usually that intensive because a lot of the documents are run-of-the-mill and most companies are not usually having problems with either the payroll or the payroll tax audit tests.

The biggest driver of cost is if you have problems with the other two tests regarding either the independent contractor misclassification issue or payments that should have been reclassified as taxable wages.

If you are having an issue with those two categories, then a lot of the work that we are doing on our end is mitigating the problem and depending on the size of the hole that has been dug depends on how much work we are going to have to do to fill it.

From a cost perspective, it varies based on the size of the problem that we are encountering and it also varies based on the size of the fight with the auditor. As you can imagine, like most organizations, some people in the EDD are nice. Some people are friendly, some are helpful and others are not.

We do not really have any control over the auditor and if the auditor turns out to be not a very nice person, that is obviously going to factor in the cost because there will be a lot of time we have to spend fighting it.

With that said, most EDD audits at our firm cost anywhere from about $5000-$7500, keeping in mind a lot of that cost is determined by who is working on the matter.

Many times, we have a very good senior paralegal who is able to work with clients and do a lot of the initial prep work and then we have one of the attorneys come in and just knock the thing out of the park. Those are great because we are able to really mitigate cost.

For more serious issues, we involve the senior attorneys at the beginning. There is a much more strategic approach to dealing with the case and obviously, when you get somebody with a higher level of experience, it just tends to drive cost.

We take the philosophy in our firm to try and be as efficient as possible and the nice thing about us is we do so many EDD audits that our whole team is on board for what we are going to do.

It is generally 10-15 hours of time in the course of the audit and that estimate gives you a good range for what is involved. Obviously, if things go south, that is going to increase costs. If we have problems with documents, that is also going to drive cost but that will give you a general sense for what you are looking at to retain Brotman Law to defend your EDD audit.

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