All You Need To Know About The EDD Audit Process
If you happen to run a business in the state of California, you are likely to be familiar with the Employment Development Department (EDD). This taxing agency is responsible for administering the collection, accounting and enforcement processes of the state’s basic employment taxes.
What is an EDD Audit?
The biggest take-away here is that when it comes to the EDD and its audits, the auditor’s assumption from the get-go is that you are out of compliance; therefore, his/her ultimate goal is to uncover wrong doings and then collect fines, interest, penalties, and back taxes from you.
It is generally agreed upon that the EDD is far more aggressive when it conducts audits than the IRS. Therefore, if you are a business owner the last thing you want to be is complacent when it comes to your employment practices. Specifically, in the long run, it pays to routinely reevaluate how you classify your workers and determine if you are indeed reporting and paying the correct amounts of payroll taxes.
Throughout the state of California there are thirty-one employment tax district offices where field operations, including audits, are conducted. The EDD is the third largest taxing agency and increasingly it works in cooperation with the IRS. Because of its broad powers to investigate and the length of time it could take to undergo an audit, most who find themselves under investigation will find it prudent to hire a tax attorney to handle the process and ensure the best and most efficient outcome.
What to Expect with an EDD Audit
The first step that commences an EDD audit is the receipt of an audit letter which will specifically list required information from the business owner. Some common requests for records could include:
- General employment questionnaire
- Payroll registers
- General ledger registers
- Wage information for particular time frames
- Employee registers
Once the audit letter goes out, responses are typically expected within ten days of the notice.
The next step is the actual audit. During this time the auditor may require further clarifications in areas such as characterization of workers, payroll tax including the proper tracking and reporting of it, and employee records and details for termination or misconduct. During this time, there can be a lot of back and forth with follow-ups and requests for more details.
After that, the auditor will at some point make a decision on his/her findings and compile a proposed notice of assessment (PNA), which is reviewed by the business owner. If the business owner does not agree with the PNA, more information can be provided to attempt a change. Ultimately, the auditor will likely stand firm and the PNA will turn into a notice of assessment (NA) which is most often the case.
The last step in the EDD audit process is the appeal with the California Unemployment Insurance Appeals Board and can be brought forth if the business owner does not accept the NA. The time frame to commence this action is tight and many miss the deadline which then makes payments to the agency inevitable. Failure to make timely payments could include severe penalties and interest and in some cases liens and personal liability risks.
Representation for an EDD Audit
As mentioned earlier, an EDD audit is rather time-consuming and can reasonably be expected to last from several months to two years before all is said and done. During the process, many mishaps could occur that often stem from simple semantic confusions or subjective interpretations. In order to mitigate these situations, your safest path is to hire a tax attorney who understands EDD procedures.
Our EDD audit attorneys at Dallo Law Group have a strong knowledge of California employment tax laws as well as the information needed and the details required when it comes to audits. We can handle the process for you right at the start upon the receipt of your notice or at a later stage such as during the appeal. Your representation and defense will be strategized around the unique particulars that make up your circumstances.
Receiving a notice from the EDD can have you feeling helpless and stressed, but in reality, you do not need to go through this difficult situation alone. Contact Dallo Law Group to help you navigate through the audit process and avoid unknown pitfalls that could expose you to severe financial hardships and personal liability.