Southern California EDD Attorneys

When you run into trouble with the EDD, it is a serious issue. If assessed payroll taxes remain unpaid after proper notice and opportunity to respond, the EDD may pursue authorized collection actions, including liens or levies, in accordance with California Unemployment Insurance Code procedures. If you are under investigation for a failure to keep payroll taxes up-to-date, they can be frighteningly aggressive. To resolve these issues or California or IRS tax problems, our legal team at Dallo Law Group has a reputation for legal excellence in all tax matters and can act immediately on your behalf.

If you have received any notice from the EDD regarding a misclassification of employees as independent contractors or payroll tax failures, it is imperative to act fast, before the matter gets worse—and it can happen quickly.

Dallo Law Group is your trusted source for experienced EDD representation in San Diego and beyond. Our professionals combine up-to-date tax knowledge with a strategic, efficient approach to resolve workplace-related matters. Whether you are an employer or employee, we handle a wide range of issues involving employment law, tax, and employment litigation. 

What Is The Employment Development Department (EDD)?

The Employment Development Department (EDD) was formed in 1935 and is one of the largest departments in the state. EDD is responsible for managing payroll tax regulations for California businesses and individuals. Likewise, most business owners are very aware of the constant threat of an EDD audit request. In particular, EDD audit notices are now surfacing due to the obstructed unemployment claims filed by 1099 contractors, and there were a whole lot of them due to the impact of COVID.

When an individual paid as an independent contractor files for unemployment insurance, the EDD may review the worker’s classification, because independent contractors are generally not eligible for unemployment benefits. Even if the applicant was simply unaware of the ineligibility, your business can be entering hot water because the EDD usually takes unemployment claims as a sign that the 1099 contractor may be an incorrectly classified worker.

The EDD provides a wide range of services for California workers and employers. It administers the Unemployment Insurance and State Disability Insurance programs, conducts audits, collects payroll taxes, and maintains employment records for millions of workers across the state. The agency also connects job seekers with employers and oversees federally funded workforce development programs. Additionally, the EDD gathers, analyzes, and publishes labor market information to support informed workforce planning and economic decision-making. 

What Is An EDD Audit?

An EDD audit checks to see if you classified workers correctly and finds out whether or not you paid the right amount of employment taxes. In short, the EDD conducts audits to ensure that businesses pay payroll taxes and employees receive their entitled benefit coverage. Many EDD payroll tax problems begin when a worker who is classified by an employer as an independent contractor files for unemployment insurance. Any type of business in California can be chosen for a payroll tax audit. Thus, it is imperative that you properly follow your responsibilities with correctly classifying your workers, withholding, and remitting employment taxes for contract employees.

During this audit, the agency will determine whether the employer controlled the worker’s manner, mode, method, and means of performing the work. The California Supreme Court states that strong evidence in support of an employment relationship is the right to discharge at will, without cause. Furthermore, in many cases, if it can be proven that the worker had their own business, the EDD will typically determine that the individual is not an employee. However, for audits of tax periods beyond January 1, 2020, the EDD will follow the “ABC test” that California has codified into law. This makes it much more likely that the worker is an employee unless they fall under a specific exception.

After the EDD audit, the findings may show that you properly classified workers and paid them the amount that you reported. On the other hand, due to the evidence uncovered, you may be subjected to additional back taxes that you owe, including penalties and interest. EDD audits commonly review recent completed calendar quarters, but the audit period may extend beyond three years if required due to unfiled returns, incomplete records, or other compliance issues. However, if you did not file any returns, the audit might cover a longer period of time.

AB5 Law Explained

The AB5 law is often referred to as the “gig worker law,” and it is how a person is defined as either a W2 employee or an independent contractor in the state of California. Businesses and HR professionals are often left wondering whether they are complying with the many nuances of this new law, which is key to avoiding EDD audit trouble. Under AB5, workers in California are presumed to be employees unless the ABC test is satisfied. As employees, they are generally entitled to benefits such as overtime pay, breaks, minimum wage, healthcare, retirement, and unemployment insurance, whereas independent contractors classified under 1099 do not receive these protections. 

To classify a worker as a 1099 contractor, employers apply the ABC test to determine that all three qualifications are present. It can be very tricky to get this determination right, and so to ensure proper compliance, securing the guidance of a tax attorney is your best bet. Here are the 3 criteria:

1. The worker is free from the control and direction of the hiring entity in connection with the work’s performance, both under the contract for the performance of the work and in fact.
2. The worker performs work that is outside the usual course of the hiring entity’s business.
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The AB5 law is complex and can be challenging to understand fully. Phrases such as “free from control” and “usual course of hiring entity’s business” can be a grey area. In evaluating the third ABC test element, the EDD considers whether the worker is customarily engaged in an independently established trade or business, which may include factors such as providing similar services to multiple entities, depending on the circumstances and applicable exemptions. In addition, the law has seen a lot of scrutiny, criticism, and change in its short life. California legislators have introduced multiple amendments and exemptions to the law, while there are still ongoing fights in the courts with some well-known gig economy companies seeking to revise the way classification occurs.

Petitioning the Outcome of an EDD Audit in Southern California

If you disagree with the audit’s findings, you can file a petition for redetermination and have your case heard by an Administrative Law Judge (ALJ). During this hearing, the judge will review the evidence to determine whether the employer controlled the worker’s manner, mode, method, and means of performing the work, or whether they met the ABC test. The hearing is usually in person but can be held remotely or via video conference. This is the taxpayer’s main opportunity to protest the audit without paying the tax and seeking a refund.

What Happens If You Misclassify a Worker in California?

Businesses that cannot unequivocally determine that all three factors of the ABC test are met must classify workers as W-2 employees to remain compliant with this law. Once a business has misclassified an employee as a 1099 contractor – whether intentionally or not – you may be at risk of an audit and penalties from EDD.

There are other triggers that bring on these audits, including, most recently, 1099 contractors filing for unemployment benefits. Others include direct employee complaints for whatever reasons to the EDD or the late filing of payroll taxes/quarterly reports. The EDD may also select employers for payroll tax audits through compliance verification programs or risk-based selection criteria.

How To Prepare For An EDD Hearing

In preparation for the hearing, you should gather your evidence and be prepared to testify. This is the taxpayer’s chance to provide additional evidence and cross-examine the EDD auditor. The ALJ will ask questions, review your documents, and make a decision on your appeal, so you want to do all you can to win your case. If you do not agree with the ALJ’s decision, you can appeal the decision to the California Unemployment Insurance Appeals Board, but that review will be limited in scope.

The evidence you should bring with you will depend on how you wish to dispute your case. Particularly, if your dispute is about the proper classification of your worker, you should be familiar with how California comes to this determination and the exceptions under the ABC test.

Some simple tips to bear in mind include:

• Arrive at your hearing on time
• Be thorough in your preparation
• Answer the questions posed to you in a professional manner
• Be prepared to ask the auditor questions
• Gather your thoughts for an effective closing statement
• Get the help of a Southern California EDD attorney to manage your case professionally

 

Our Scope of Practice: Dallo Law Group

California Tax Help

Navigate complex CDTFA, EDD, and FTB disputes with the help of Dallo Law Group, the preeminent Southern California tax law group. Our firm provides aggressive representation for California residency and state-level audits.

Criminal Tax Defense

Protect your freedom and your reputation if you are accused of committing a tax crime. We provide strategic defense against allegations of tax evasion, fraud, and willful failure to file.

Employee Retention Tax Credit Audits

Defend your ERTC claims when under frightening IRS scrutiny. We handle complex eligibility verification and audit defense to protect your bank accounts, assets, and reputation.

Foreign Bank Accounts (OVDI)

Ensure FBAR and FATCA compliance if you have foreign bank accounts. We guide clients through offshore voluntary disclosure programs to mitigate severe penalties for undisclosed foreign assets.

IRS Tax Appeals

Challenge unfavorable IRS findings through the formal appeals process. We leverage deep tax law expertise to negotiate settlements and avoid litigation.

Tax Audit Defense

Level the playing field during IRS or state examinations. We manage all communications and documentation to minimize your financial exposure.

Tax Debt Relief

Regain financial control when facing crushing tax debt. We negotiate Offers in Compromise, installment agreements, and penalty abatements to resolve overwhelming federal and state liabilities.

Tax Litigation

When negotiations fail, we are talented and prepared to fight for you in U.S. Tax Court. Our litigators provide powerhouse representation for complex tax disputes.

Tax Preparer Penalties

We work with tax preparers to protect their professional licenses if accused of a violation. We defend tax professionals against IRS investigations, injunctions, and civil penalties for alleged misconduct.

Unfiled Tax Returns

Resolve years of unfiled tax returns with our help. Our firm can help you finally file all delinquent returns in a strategic manner. We focus on minimizing penalties and preventing more aggressive IRS collection actions.

How Our San Diego EDD Attorneys Can Help

Dallo Law Group stays at the forefront of employment tax law and litigation, which is why we are consistently ranked among the top Southern California EDD tax attorneys. Our team includes both CPAs and tax lawyers who have diverse backgrounds. Our top priority is to deliver the most positive outcome for each client’s situation.

An EDD audit can be a complex and stressful process. At Dallo Law Group, we work closely with you to identify the right witnesses and gather the necessary documentation to support your payroll tax dispute. It is important to understand that if an employer is unable to pay the California employment taxes owed, the EDD may hold officers and stockholders personally liable for willful nonpayment. No one should face such a situation without skilled legal guidance. 

No matter how complicated, our professionals can represent you in an EDD audit from beginning to end and with the individualized attention that you and your case deserve. Whether you are in the midst of an EDD audit or down to the EDD hearing, we are here to help. Dallo Law Group offers a consultation and case evaluation, so contact our firm today to achieve the legal support and relief you deserve.

Call 619-912-0616 today to speak with us about your EDD tax issue.