Can an EA Represent Me in an EDD Audit?

The Employment Development Department is California’s agency responsible for administering the state’s employment tax programs. If you have employees in California, you’re required to withhold and remit several types of employment taxes through the EDD:

– State Disability Insurance (SDI): Employee-paid contributions that fund disability benefits
– Unemployment Insurance (UI): Employer-paid contributions that fund unemployment benefits
– Employment Training Tax (ETT): Employer-paid contributions for worker training programs
– Personal Income Tax (PIT) Withholding: California state income tax withheld from employee wages

The EDD conducts audits for various reasons. Sometimes it’s random selection. Sometimes it’s triggered by a complaint—often from a worker who believes they were misclassified. Other times, information reported to the EDD doesn’t match data from other sources, raising red flags. Whatever the trigger, once an audit begins, the EDD examines your worker classifications, payroll records, and tax filings with considerable scrutiny.

While both agencies examine tax compliance, EDD audits have unique characteristics that make them particularly challenging for California businesses:

The ABC Test: California uses one of the strictest worker classification standards in the country. Under Assembly Bill 5 (AB5) and the ABC test, a worker is presumed to be an employee unless the hiring entity can prove all three conditions: (A) the worker is free from control and direction, (B) the work is outside the usual course of the business, and (C) the worker has an independent business. This test is much harder for businesses to satisfy than the IRS’s common-law test, meaning workers the IRS might accept as independent contractors could be reclassified as employees by the EDD.

Aggressive Assessment Approach: The EDD is known for taking aggressive positions on worker classification. Auditors often start with the assumption that workers are employees and require businesses to prove otherwise. This shifts the burden of proof significantly.

Extended Look-Back Periods: EDD audits typically cover a three-year period, but this can extend further in cases of fraud or significant underreporting. Years of potential misclassification can result in massive liability accumulation.

Personal Liability for Business Owners: Unlike some other tax obligations, employment tax liabilities can pierce corporate protections. Business owners, officers, and even some managers can be held personally liable for unpaid employment taxes—a provision known as ‘responsible person’ liability.

The financial exposure in an EDD audit can be substantial. If the EDD determines that workers you classified as independent contractors should have been employees, they will assess:

– Back taxes: All the UI, ETT, SDI, and PIT withholding that should have been paid for the audit period
– Penalties: Various penalties for failure to file, failure to pay, and in some cases, fraud penalties that can reach 50% of the tax due
– Interest: Interest accrues from the original due date of the taxes, compounding the liability significantly over multi-year audit periods

I’ve seen cases where businesses faced assessments exceeding $200,000 for worker classification issues. For a small or medium-sized business, an assessment of this magnitude can be existentially threatening. This is why professional representation isn’t just helpful—it’s essential.

While the Enrolled Agent credential is a federal license issued by the U.S. Department of the Treasury, California law permits qualified tax professionals—including EAs, CPAs, and attorneys—to represent taxpayers before state agencies like the EDD.

The process involves filing a Power of Attorney (Form DE 48) with the EDD, authorizing your representative to act on your behalf. Once this form is on file, your EA can:

– Communicate directly with EDD auditors and staff
– Receive confidential tax information and audit correspondence
– Attend audit meetings and interviews on your behalf
– Respond to information requests and document demands
– Negotiate settlements and payment arrangements
– File appeals and represent you in administrative hearings

The key advantage of working with an EA who specializes in California tax matters is the combination of deep tax expertise with specific experience navigating EDD procedures. Not every tax professional has this specialized knowledge—EDD audits require understanding of both employment tax law and the agency’s specific practices and tendencies.

When facing an EDD audit, you have several representation options: an attorney, a CPA, or an Enrolled Agent. Each brings different strengths, and the right choice depends on your specific situation.

Attorneys are essential if your case involves potential criminal exposure (such as fraud allegations) or if litigation in civil court is likely. However, for most EDD audits, which are administrative proceedings, attorney-level representation comes with premium pricing that may not be necessary.

CPAs bring strong accounting backgrounds, which is valuable for reconstructing payroll records and analyzing financial data. However, not all CPAs specialize in employment tax matters or have significant experience with EDD audits specifically.

Enrolled Agents who focus on California tax representation offer a compelling combination: deep tax expertise, specific experience with state agency procedures, and cost-effectiveness compared to attorney rates. For most EDD audits, an experienced EA provides the expertise you need at a more accessible price point.

The most important factor isn’t the credential—it’s the representative’s specific experience with EDD audits. An EA who handles EDD matters regularly will generally outperform a generalist CPA or attorney who rarely deals with employment tax issues.

Understanding the EDD audit process helps reduce anxiety and enables better preparation. Here’s what typically happens:

Audit Notification: The EDD sends a notice (typically Form DE 23) informing you of the audit and requesting an initial meeting. This notice specifies the audit period and the types of records you’ll need to provide. Don’t ignore this notice—the clock starts ticking on response deadlines.

Document Request: The EDD will request extensive documentation, including payroll records, 1099 forms, contracts with independent contractors, business licenses, corporate documents, bank statements, and canceled checks. The scope of these requests can be overwhelming for businesses that aren’t prepared.

Field Audit: Most EDD audits involve an auditor visiting your business location. They’ll examine your records, observe your operations, and may interview you about your business practices and worker relationships. This is where having representation becomes crucial—a skilled representative manages this interaction to protect your interests.

Worker Interviews: The EDD may contact workers you’ve classified as independent contractors to gather information about their work arrangements. These interviews can significantly impact the audit outcome, and there’s little you can do to control what workers say.

Audit Findings: After completing their examination, the auditor issues a preliminary audit report detailing their findings. If they’ve determined that workers were misclassified, this report will include proposed assessments for additional taxes, penalties, and interest.

Petition and Appeal: If you disagree with the findings, you have the right to petition for reassessment and, if necessary, appeal to the California Unemployment Insurance Appeals Board (CUIAB). These administrative remedies provide opportunities to challenge unfavorable determinations.

EDD auditors typically request extensive documentation. Being prepared with organized records significantly improves your audit experience and outcome. Common requests include:

– Quarterly tax returns (Form DE 9 and DE 9C) for the audit period
– Payroll journals and registers
– All Forms 1099-NEC and 1099-MISC issued during the audit period
– Contracts and agreements with independent contractors
– Invoices from independent contractors
– Bank statements and canceled checks
– General ledger and cash disbursements journal
– Business formation documents (articles of incorporation, operating agreements)
– Workers’ compensation insurance policies
– Business licenses and permits

An experienced representative knows which documents are essential, which are helpful, and which might unnecessarily expand the audit’s scope. This strategic approach to document production is one of the key benefits of professional representation.

My approach to EDD audits is built on thorough preparation, strategic advocacy, and a deep understanding of how the EDD operates. Here’s what you can expect when you engage my services:

Comprehensive Case Analysis: Before responding to the EDD or attending any meetings, I conduct a thorough review of your business operations, worker relationships, and documentation. This allows me to identify strengths in your position, anticipate problem areas, and develop a cohesive strategy.

Strategic Document Production: I work with you to gather and organize the required documentation, ensuring we provide what’s legally required while avoiding unnecessary disclosures that could expand the audit’s scope. Presentation matters—well-organized, professional documentation creates a positive impression with auditors.

Audit Meeting Management: I handle all interactions with EDD auditors, either attending meetings with you or in your place. Having an experienced representative at these meetings prevents common mistakes like volunteering harmful information or agreeing to positions you shouldn’t accept.

Worker Classification Defense: If the core issue is worker classification, I build the strongest possible case for your independent contractor relationships. This includes documenting the factors that support contractor status, preparing written arguments based on applicable law, and presenting evidence in the most favorable light.

Negotiation and Resolution: When assessments are proposed, I negotiate with the EDD to minimize your liability. This might involve challenging specific findings, negotiating penalty abatement, or arranging manageable payment terms for any amounts ultimately owed.

My background includes over two decades of experience in high-level finance positions, including serving as Controller at Xerox Corporation and Director of Finance at AEG. This corporate experience gives me a deep understanding of how businesses operate, how employment relationships are structured, and how payroll systems work—knowledge that’s directly applicable to EDD audits.

As an Enrolled Agent specializing in California tax matters, I regularly represent businesses before the EDD, FTB, and CDTFA. This isn’t occasional work for me—it’s a core focus of my practice. I understand EDD procedures, know how auditors approach their examinations, and have developed effective strategies for achieving favorable outcomes.

I’ve represented businesses across various industries facing EDD scrutiny—from construction and transportation companies to professional services firms and technology startups. Each industry has its own common practices and potential pitfalls when it comes to worker classification, and experience across these sectors informs my approach to each new case.

Even if the audit has concluded and the EDD has issued an assessment, you still have appeal options. California provides administrative remedies for challenging EDD determinations:

Petition for Reassessment: You can file a petition asking the EDD to reconsider its assessment. This petition must be filed within 30 days of the assessment notice. I can prepare and file this petition on your behalf, presenting arguments and evidence to support a reduced assessment.

CUIAB Appeal: If the petition is denied or results in an unsatisfactory outcome, you can appeal to the California Unemployment Insurance Appeals Board. This involves a hearing before an administrative law judge, where I can represent you and present your case.

Settlement Negotiations: In some cases, negotiating a settlement with the EDD may be the most practical path forward. This might involve accepting certain findings while contesting others, or negotiating penalty reductions in exchange for prompt payment.

The important thing is to act quickly—deadlines for challenging EDD assessments are strict, and missing them can result in losing your appeal rights entirely.

The cost of representation depends on the complexity of your case, the audit period covered, and the issues involved. For many EDD audits, I can provide flat-fee arrangements that give you cost certainty from the start.

During our initial consultation, I’ll assess your situation and provide a clear estimate of expected costs. More importantly, consider the potential cost of inadequate representation. EDD assessments for worker misclassification can easily reach five or six figures. Effective representation that reduces or eliminates an assessment typically saves far more than it costs.

Absolutely—in fact, getting representation early in the audit process is ideal. The initial stages of an EDD audit set the tone for everything that follows. Having experienced representation from the beginning helps ensure you don’t make early mistakes that can haunt you throughout the audit.

First-time audit clients benefit particularly from guidance on what to expect, how to gather and organize documentation, and how to interact with auditors. This foundation makes the entire process less stressful and typically leads to better outcomes.

Yes. While I’m based in Whittier in Los Angeles County, I represent businesses throughout California in EDD matters. Many aspects of EDD representation can be handled remotely—document review, correspondence with the EDD, and strategic planning don’t require in-person meetings. When in-person attendance is necessary, I travel to EDD offices across the state.

I also handle federal IRS matters nationwide and serve American expatriates around the world. Modern technology makes distance largely irrelevant for tax representation purposes.

If you’ve just received an EDD audit notice, here are your immediate next steps:

1. Don’t panic, but don’t ignore it. EDD audits are serious, but they’re manageable with proper representation. Ignoring the notice only makes things worse.
2. Note the deadlines. EDD notices contain response deadlines. Mark these on your calendar immediately.
3. Don’t respond yet. Before contacting the EDD or providing any documents, consult with a qualified representative.
4. Gather your records. Start locating payroll records, contractor agreements, and 1099 forms for the audit period.
5. Contact an experienced representative. Get professional guidance before taking any action that could affect your audit outcome.