Payroll tax audits focus on four main areas:
1) That the correct amount of wages were reported.
2) The correct amount of tax was paid.
3) That there is no additional tax owed (through an examination of the general ledger and bank statements).
4) That there are no independent contractors who need to be classified as employees with additional tax due.
Hopefully, you are contacting our firm prior to submitting the EDD's pre-audit questionnaire. The form itself seems harmless, but actually contains many questions and requests for information where the answers can have broad reaching consequences on your audit and beyond.
Our first action to get your audit off on the right foot is to fill out the pre-audit questionnaire with the answers that will steer the audit in the right direction. Our goal is to start by framing the California payroll tax auditor's perception of the company in a positive light, even if there is negative or damaging information about the company disclosed in the questionnaire that we cannot avoid.
We cannot necessarily control the cards that we are dealt, but we can control how we play those cards and the pre-audit questionnaire is an important step in that process.
The advantage that exists in 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 (and 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 the conduct of the business, should be the business be subject to a penalty/penalties?
So, because we have the auditor's playbook, we can put you through a rough simulation of what you are going to experience in the audit. This is the best way to avoid liability because we can take a practice run at examining areas where there might be potential risk and resolving issues before we have to put them in front of the auditor.
The audit meeting for a California payroll tax auditor is critical because it directly affects the auditor's perception of your company and any workers associated with that company and what those people do. After the audit meeting, the auditor may try and contact 3rd parties to verify the information in the audit (do not worry, we are ready for this), so the initial meeting and the framework provided for the auditor are important in setting the tone.
We show up to represent you for your payroll tax audit and give a presentation, based on your documents and supporting materials, to the auditor. Because of our pre-audit, we are well rehearsed and able to respond to any objections that the auditor might have.
Between the audit meeting and the finalization of the auditor's report, we will handle any follow up questions or back and forth. Our pre-audits usually eliminate the need for supplemental information or document requests, although it does happen from time to time. After the auditor has concluded their work, hopefully with no additional tax due and owing, we will do what is needed to close the audit and for the auditor to include information in their report that will hopefully dissuade the state from auditing you again.
If you are unsatisfied with the audit, we have multiple options at our disposal. Depending on the issue, we can figure out the best way to challenge whether through the auditor's district managers or the California Unemployment Insurance Appeals Board.