If your business is experiencing an EDD audit, it’s important to know what to expect. Founder and managing attorney at Milikowsky Tax Law, John Milikowsky, breaks down the EDD audit process and the frequently asked questions that come with an EDD audit.
“What you can expect from us, whether you have a balance owed to the IRS or the State of California, an EDD audit, or a criminal matter, is a dedicated and passionate team of people who have a lot of expertise to help resolve your issues. Our process is very simple, but it’s very different from many other law firms.”
What is the EDD audit case process at Milikowsky Tax Law?
“We don’t simply submit records to the government. We analyze everything. We use a lot of data analytics to really understand your business. A lot of us, including myself, have run companies before, so we understand what you’re going through.
We have a lot of business experience. We know exactly what to look for, and we can anticipate the questions the government’s going to ask and we’ll build strategies and defenses in advance.
Once we’ve looked at all your records and identified potential issues, we identify strategies to navigate around them. At that point, we execute on our findings and work toward a resolution for your case.
EDD Audit Step by Step Guide
If you are being audited by EDD, you will receive a letter of inquiry. Upon receiving this letter, the clock starts counting down. You have a limited about of time in which to respond.
Our process begins with an interview, in person or over Zoom in which we get a good understanding of your business.
We gather documents to begin to analyze everything.
- Your accounting records
- Your transactional documents
- Interviewing your workers,
- Interviewing other business associates
After our internal analysis, we give you a debrief and provide a roadmap of how the case will likely proceed.
Once we collect and analyze your information, build the narrative around why your contractors are correctly classified and how your business is structured, we begin to communicate with the government.
Are All Audits the Same?
Whenever an audit is initiated, the audited party will receive a letter from the government requesting records for a “routine investigation”. In the case of EDD audits, the process is usually initiated by a red flag that you have misclassified your workers. Some of the ways the agency can be alerted to this are:
- A 1099 contractor filed for unemployment
- A competitor raised a complaint
- You were subject to a random site sweep by EDD or Contractors State Licensing Board (CSLB)
- Your payroll records did not match your IRS filings and the agencies communicated.
How is an EDD audit case resolved?
Edd audits require a lot of negotiation and communication because each business is structured differently, workers perform different jobs and the rules from classification have changed even within the 12 quarter audit period as it stands in Q4 of 2021.
The final resolution comes in the form of a letter from the government that say either there is nothing owed, you owe fees penalties and back taxes or, there was an error in your favor.