The Employment Development Department is authorized, under the California Unemployment Insurance Code, to conduct payroll tax audits on any business operating in the state. If you’ve received an audit notice, it’s a good time to reach out to a tax professional to assist you in handling the process and understanding all of your options.Here are the Basics:
First, it’s helpful to know what to expect. Audits by the EDD usually review a three-year timeframe, including the most recent twelve months. For cases in which no returns were filed, this can include more years.
There is an “entrance interview” conducted to explain the audit purpose and process. At this time, the auditor will also ask questions of you or your authorized representative to understand your organization, business, and recordkeeping practices. This also affords you the chance to ask questions of the auditor.
You’ll be asked to provide the auditor with access to your accounting records for the years included in the EDD audit. The auditor will review them to determine several things:
Additionally, you should be prepared to undergo a series of “tests” for the auditor to ascertain whether or not your company has paid the correct tax amount for the years under scrutiny. These include:
In an EDD tax audit, you will be required to supply the auditor with the following records, at a minimum:
Sections 1085 and 1092 of the CUIC require all employing units to make business records available to the EDD during normal business hours. These records include:
The following, additional records may be required for verification of acknowledged payroll in some cases:
At the end of an EDD tax audit, the auditor will want to meet to discuss the findings. This can be as simple as determining that your business is perfectly compliant, resulting in no changes. It can get more complex with overpayments, underpayments, or both. If you’ve overpaid, you’ll be given a tax credit. In the case of underpayments, things can become very complex, resulting in thousands of dollars in newly assessed taxes.
Additionally, the EDD and the IRS have an information exchange agreement. So, if you are assessed additional taxes by the EDD, it can open up implications with the IRS auditors.You Do Have Options
When you receive an EDD tax audit notice, contacting us can make your life easier. We know the tax code. We can be appointed as a representative to oversee your documentation, working with the auditor to resolve any questions that arise, and in the event of an assessment of additional taxes – work to come up with an effective tax debt resolution.
We handle all of the intricate details of the audit process and negotiation to free you up to do what you do best – run your business.