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    • Ronson J. Shamoun, ESQ., LL.M.
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  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Leslie Miranda, Esq., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Marley Smith-Peters
    • Melanie Chan
    • Tanner DeMera
    • Charles Ecker
    • Anna Gurr
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • NOTICES
          • IRS Notices
          • IRS Letters
          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
        • IRS Wealth Squad
        • Offer in Compromise & Tax Settlements
          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
      • STATE TAX MATTERS
        • EDD California Payroll Tax Lawyer
          • EDD Investigations
          • EDD Collections – Liens, Levies, and Garnishments
        • CDTFA – California Sales Tax
          • California Sales Tax Appeals
          • California Sales Tax Audits
          • California Department Of Tax And Fee Administration – CDTFA
        • California State Tax Matters – California Franchise Tax Board | FTB | EDD
          • California Residency Audits
          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
      • CRIMINAL TAX ISSUES
        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • CORPORATE TAXES
      • TAX COURT LITIGATION
      • Innocent Spouse Relief
    • International Tax
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    • Trust, Estate & Probate Litigation
    • Trust & Estate Administration
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    • Private Wealth Services
    • Real Estate Law
      • Landlord Tenant Law
    • Employment Law
  • Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
  • Testimonials
  • Giving
    • Giving
    • RJS Law Donates Billboard to the Girl Scouts
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    • Ronson J. Shamoun at events with various dignitaries
    • SD50 Extraordinary Leadership
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What Triggers an EDD Audit?

EDD Audit
What Triggers an EDD Audit?

What triggers an EDD Audit? If your business is being audited by California’s Employment Development Department, the first question you need to answer is, “Why?” Not only will figuring out what triggered the EDD audit help you defend against the audit itself, but it will also allow you to determine if your business is at risk due to potential violations that are not specifically related to payroll tax liability.

Why Does the California EDD Audit Employers?

The California EDD holds primary responsibility for administering the state’s payroll tax laws and collecting payroll taxes from employers. This includes four separate types of taxes, two of which employers pay directly, and two of which employers collect and remit on behalf of their employees:

  • Unemployment Insurance (UI) – An employer-paid tax intended to cover the costs of California’s unemployment benefits program.
  • Employment Training Tax (ETT) – An employer-paid tax that funds a state training program for workers in certain industries.
  • State Disability Insurance (SDI) – An employee-paid tax that covers the cost of California disability benefits for employees who get injured or fall ill.
  • Personal Income Tax (PIT) – An employee-paid tax on earned income.

When the Employment Development Department conducts an audit, the purpose of the audit is to determine if an employer has fully paid the payroll taxes it owes under California law. As a result, this includes the employer’s direct tax liability as well as the SDI and PIT taxes it is required to withhold from employees’ compensation. As summarized in the EDD’s Information Sheet for the Employment Tax Audit Process:

“The payroll tax audit [EDD audit] verifies compliance with the [California Unemployment Insurance Code (CUIC)], ensures workers are properly classified, payments made to employees are properly reported, and protects workers’ rights to receive benefits.”

What Triggers California EDD Audits?

Since payroll taxes are a significant source of funding for the State of California, the EDD aggressively enforces employers’ payment obligations through audits and collection proceedings.

Even so, the Employment Development Department simply does not have the resources to audit all California employers every year. As a result, EDD audits are typically triggered by:

1. The EDD Verification Process

While the Employment Development Department does not audit all employers, rather it does conduct “verification audits” of companies that are selected at random or based on certain criteria. A verification audit is the only type of EDD audit that does not arise out of a specific event or allegation of unlawful conduct.

2. Independent Contractor Filing for Unemployment

Workers who are properly classified as independent contractors are not eligible for unemployment benefits in California. When a worker who was paid as independent contractor files for unemployment, this means that he or she (knowingly or unknowingly) is claiming to have been improperly classified, and this can raise a red flat with the Employment Development Department.

3. Late Filing of Payroll Tax Returns or Late Payment of Taxes

Failing to timely meet your filing or payment obligations can trigger an EDD audit. Therefore, late payments are subject to interest and penalties regardless of whether they are revealed in a delinquent filing or through the audit process.

4. Failing to Pay Wages on Time or Collect and Remit SDI and PIT

Employees who do not receive their wages on time will often report their employers to the Employment Development Department. Apparent failure to collect and remit SDI and PIT (as alleged by an employee or revealed in employees’ personal income tax filings) is a common trigger for EDD audits as well.

Are You Facing an EDD Audit? Our Southern California Tax Attorneys Can Help.

In conclusion, if your company is being audited by the EDD, because our tax attorneys can deal with the Employment Development Department on your company’s behalf and ensure that you are not wrongfully accused of underpaying California state payroll taxes or misclassifying your workers. To learn more in a complimentary initial consultation, give us a call at 619-595-1655 or contact us online today.

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