Should my client hire a criminal attorney or a tax attorney?
When clients are under criminal tax audit it can be a toss-up as to whether they engage a criminal attorney or a tax attorney. In our experience, the expertise the tax attorney provides better end results. Take this example (extrapolated from multiple cases). "Joe" owns a construction company. For the past 3 years, his contracts have grown a lot and he's hired on many new workers. Things are going well, he can barely keep up with the demand. One random Tuesday, there's an EDD site sweep in his area, and every worker is questioned by EDD, do they have the proper license, are they correctly classified as a 1099, or should they be reclassified as a W-2 worker with benefits and Worker's Comp? Joe receives an EDD audit letter and, a criminal investigation for insurance fraud for failing to have proper Worker's Comp. The language in the letters is upsetting but the visit to his home from the EDD agents is truly unsettling. Joe finds us and we go to work understanding his business, reviewing his workers, what they actually do, what licenses they really need (as opposed to those EDD assigns them in the audit).
Our expertise is not only in tax law but in communicating clearly with government agencies in audit settings to advocate for our clients. Because we work exclusively with auditing government agencies, we know what to expect, how to limit the scope of the inquiry, and what the consequences are of every move along the way.
Joe's situation turns around (not a promise of results, every case is different) in his case, many of his workers are specialists and are correctly classified as 1099 workers. This relieves the criminal insurance charges and reduces the penalties from crippling to manageable. Joe's business is still in business. Joe's life is still intact. The consequences could have been bankruptcy and prison.
On the other side of the coin let's review the case of "Keith" (also a compilation of multiple cases). Keith owns a construction company, is audited in a site sweep, is visited by IRS criminal as well as EDD auditors at his home. He hires a criminal attorney. The criminal attorney advises Keith that he will handle the criminal charges but sends Keith to speak to EDD himself... without representation. Keith tries to comply with EDD's requests and unwittingly opens up a second audit into a different section of his business. The possible penalties mount into the hundreds of thousands of dollars and Keith has given them corroborating evidence against himself by turning over records that EDD did not request.
Keith comes to us with 3 weeks left until his final ruling from IRS, EDD, and CFTB. With so much unnecessary information having been given to EDD and IRS, there is far less our office can do to re-frame Keith's situation. With careful and diligent research and negotiations, we buy more time to better understand Keith's business structures, his workers, and his true liability. After 6 weeks of research and planning, we are able to get Keith onto a payment plan, re-classify 50% of the workers initially deemed as misclassified as 1099s, and set him on a path to remaining in business.
Both of these scenarios are compilations of cases we have seen, highlighting the importance of hiring a qualified tax attorney in cases of criminal investigation by IRS, EDD, or other government entities. Making the wrong choice is deeply consequential and the work we do holds those consequences in highest regard.
If your client is audited by IRS, EDD or other governmental agency, please do not hesitate to reach out to our office. We mean it when we say, "we keep businesses in business".
SBA, EIDL, PPP Audits and Inquiries
If your client applied for a PPP loan, and receives a request for information and documents from their bank to substantiate their financials, consider calling a tax attorney to review SBA’s regulations and any questions from the bank.
The Small Business Administration (SBA) is currently investigating all SBA Payment Protection Program (PPP) loans, regardless of the dollar amount of the loan.
Based on information obtained from SBA, once a request has been made for additional documents following the funding of the loan, there is an active investigation. The response from you, the CPA, and your client will affect whether the case is referred to for potential criminal investigation. This would be the case when the information simply does not support the financials or the requirements of the PPP loan.
Issues that have come up in some of our cases include:
- Not having a legitimate work visa
- Using PPP funds obtained by one company that another company applied for and obtained through SBA
Why working together helps your clients when they need it most
If you're reading this you are the kind of CPA who has lasting trusted advisory relationships with clients whose financial complexity goes way beyond an e-filing. We only work with business owners who are being audited by IRS, EDD, or other government agencies. In many cases, our clients have complex financial structures that leave them vulnerable to "audit creep". Audit creep is when the auditing agency requests documents they do not need for the scope of the initial audit and then open investigations into other areas of the client's business dealings. This is common and consequential in that the penalties can grow exponentially when these audits are left to creep unchecked.
Our expertise is in limiting the scope of the audit to that which the governmental agency has outlined and in ensuring that the circumstances and facts around the client's situation are clearly understood in the context of the audit before we address the agency. Our attention to detail and ability to navigate the rough waters of IRS, EDD, and criminal tax audits is unparalleled.
Are Your 1099 Workers Classified Correctly? The rules have changed: Take our quiz to find out.
Properly Classifying Workers
Ensuring that all of your workers are classified correctly is one of the strongest ways to reduce your risk of an EDD audit. A large portion of California EDD problems are caused by worker misclassification. It can be confusing for small business owners, especially if you are just starting out, to accurately determine whether a worker is an employee (receiving a W-2) or an independent contractor (receiving a 1099).
We have written extensively about employee classification to help business owners navigate the laws. Our blogs explain what factors make a worker an independent contractor vs. an employee, who is eligible for unemployment insurance, what to know when you hire independent contractors, how to use Form SS-8, and much more. Learn more through our detailed resources below.
- Small-Business Hiring: Who Should Be Your First Employee?
- Hiring Your First Independent Contractor: What You Should Know
- California EDD: 1099 Contractors vs Employees + How to tell the difference
- EDD: 1099s vs Employees, Don’t Risk Misclassification
- 5 Mistakes Businesses Can Make When Hiring and Working With Independent Contractors
- What is Form SS-8 and When Do I Need to Use It?
- Employees Vs. Independent Contractors: How Should You Classify?
- 10 Myths of Worker Misclassification (Independent Contractor or Employee)
Navigating an EDD Audit: What to Expect
If you have been contacted by the California EDD, you don’t have to go through the process alone. Dealing with the EDD can be nerve-racking and complicated to say the least. By working with a skilled EDD audit attorney, you can ensure you are well protected in your case with this powerful government organization.
Here are some resources to help you understand what to expect and how to handle your situation.
Reach out to one of our San Diego tax attorneys today:
San Diego EDD Audit Attorney
Proper legal guidance can keep you out of trouble and save you thousands in liabilities. It is in your best interest to retain a dedicated tax law firm with experience handling complicated payroll tax matters.
As experienced San Diego EDD audit attorneys, the team at Milikowsky Tax Law has successfully represented numerous clients in disputes with the Employment Development Department.
Our firm can handle the following kinds of disputes with the EDD:
- Failure to deposit or file your payroll taxes
- Liens placed against your business or personal properties
- Threats to shut down your business
- Matters that require action or appeal in court
- Employee and contractor disputes
Contact Milikowsky Tax Law Today
If you are struggling to resolve California EDD problems while trying to keep your small business running, look no further than our team. At Milikowsky Tax Law, we are committed to protecting our clients’ best interests and providing expert legal counsel. We understand that dealing with any government agency, particularly the EDD, can be daunting. Working with one of our San Diego EDD audit attorneys will provide you the defense you need to protect your business.
Call our office at (858) 450-1040 and speak with a dedicated member of our team.