California EDD Audit Appeals & Petitions for Reassessment

If you disagree with an EDD payroll tax assessment, worker classification determination, or other audit finding, the audit does not necessarily end with the auditor's conclusion.

California employers may have the right to challenge an EDD assessment through a Petition for Reassessment before the California Unemployment Insurance Appeals Board. Deadlines are important, and the assessment should be reviewed promptly.

You Can Challenge an EDD Payroll Tax Assessment

An EDD auditor's determination does not necessarily have to be accepted without review. An employer may disagree with the EDD's conclusions about worker classification, the identity of the employer, the amount of wages or payroll involved, the audit period, or the amount of the resulting assessment.

California provides an administrative process through which employers can challenge qualifying EDD payroll tax assessments. This process can provide an opportunity to develop the factual record, present documentation, dispute calculations, and contest worker classification or other audit conclusions.

The appropriate response depends on the notice you received, the procedural stage of the case, and the specific findings being disputed.

Understanding an EDD Notice of Assessment

Following an employment tax audit, the EDD may issue an assessment when it determines that additional California employment taxes are due.

The assessment may arise from issues such as:

• Independent contractors reclassified as employees
• Payments determined to constitute taxable wages
• Unreported or underreported payroll
• Disputed employment relationships
• Payroll tax calculation differences
• Periods or amounts included in the audit that the employer disputes
• Interest and applicable penalties associated with the assessment

Before deciding how to respond, the assessment should be compared with the auditor's findings, workpapers, payroll and accounting records, and the factual basis for any worker classification determinations.

What Is an EDD Petition for Reassessment?

A Petition for Reassessment is the administrative procedure through which an employer can challenge an EDD payroll tax assessment.

The petition is filed with the California Unemployment Insurance Appeals Board, commonly referred to as CUIAB. CUIAB is separate from the EDD and hears disputes involving California unemployment insurance and employment tax matters.

Depending on the case, a petition may dispute issues such as:

• Whether particular workers were employees or independent contractors
• Whether the business was the employer responsible for the tax
• Whether particular payments constituted wages
• The amount of payroll included in the assessment
• The period covered by the assessment
• The auditor's calculations or factual conclusions
• Penalties or other disputed components of the assessment

Can Audit Findings Be Discussed Before the Appeal?

The administrative appeal is not always the first opportunity to address disputed findings. The EDD's published audit guidance provides for discussion of the audit assessment and identifies a pre-assessment conference as an opportunity for the employer to meet with the auditor and the auditor's supervisor.

If the employer believes the auditor misunderstood records, applied the wrong facts, included incorrect workers or payments, or otherwise reached conclusions that should be reconsidered, those issues may warrant careful review before the petition deadline expires.

A conference or continuing discussion with the EDD should not be treated as a substitute for preserving formal petition rights when a deadline is approaching.

Building the Case Against a Disputed EDD Assessment

An effective challenge generally requires more than simply stating that the EDD is wrong. The disputed issues should be tied to the underlying records, facts, calculations, and applicable worker classification standards.

Depending on the issues involved, review may include:

• EDD audit workpapers and proposed adjustments
• Payroll registers and payroll tax returns
• Forms W-2 and 1099
• General ledger and disbursement records
• Contracts and independent contractor agreements
• Invoices and documentation concerning services performed
• Facts concerning the actual relationship between the business and workers
• The worker classification standard applied by the EDD
• The workers and periods included in the assessment
• Mathematical calculations underlying the proposed liability

The objective is to identify precisely what is being disputed and develop supporting evidence for the employer's position.

What Happens After an EDD Tax Petition Is Filed?

After a Petition for Reassessment is filed, the matter proceeds through the CUIAB tax appeal process. The EDD prepares its response to the petition, and additional information may continue to be provided while the dispute is pending.

If the dispute is not resolved beforehand, the case may proceed to a formal hearing before a CUIAB Administrative Law Judge.

At a hearing, the parties may present documents, call witnesses, question witnesses, and present evidence concerning the disputed employment tax issues.

Preparation therefore involves more than completing a petition form. The records, factual history, worker relationships, calculations, and disputed legal or tax issues should be organized so the employer's position can be clearly presented.

CPA Representation in an EDD Payroll Tax Appeal

EDD tax appeals often involve a combination of payroll reporting, accounting records, worker classification, factual questions, and calculations of employment tax liability.

A CPA may represent an employer in the CUIAB tax appeal process. Our representation may include:

• Reviewing the EDD assessment and petition deadline
• Analyzing the auditor's findings and workpapers
• Reviewing payroll, accounting, and contractor records
• Identifying the specific issues being disputed
• Evaluating worker classification findings
• Reviewing the workers and periods included in the assessment
• Analyzing the EDD's payroll tax calculations
• Preparing supporting schedules and accounting analysis
• Communicating with the EDD regarding disputed audit issues
• Assisting with preparation and presentation of the administrative appeal

In matters requiring legal issues outside the scope of our representation, coordination with qualified legal counsel may also be appropriate.

Does Filing a Petition Stop Interest From Accruing?

Filing a Petition for Reassessment does not generally stop interest from continuing to accrue on an unpaid assessment.

An employer may choose to pay an assessed liability while continuing to dispute it. Under the EDD's procedures, payment of the disputed assessment can convert the matter to a claim-for-refund posture while the administrative challenge continues.

Whether payment makes sense depends on the amount involved, cash flow, the interest consequences, and the procedural posture of the case. Those issues should be considered separately from the merits of the underlying audit dispute.

Common Issues in EDD Payroll Tax Appeals

The issues that lead to an appeal vary considerably from one business to another. Common disputes can involve:

• Independent contractor versus employee classification
• Application of the ABC test or another classification standard
• Whether particular payments were wages
• Whether particular individuals should have been included in taxable payroll
• Who was the actual employer of particular workers
• Payroll amounts attributed to specific periods
• Accounting or mathematical errors in the assessment
• Penalties associated with the asserted payroll tax liability

A successful appeal strategy begins by separating the issues and determining what evidence supports the employer's position on each disputed item.

Frequently Asked Questions About EDD Audit Appeals

How do I appeal an EDD payroll tax assessment?

An employer that disagrees with an EDD payroll tax assessment may generally challenge it by filing a Petition for Reassessment with the California Unemployment Insurance Appeals Board. The Notice of Assessment should be reviewed carefully for the specific procedures and deadline applicable to the case.

How long do I have to file an EDD Petition for Reassessment?

EDD guidance states that a Petition for Reassessment generally must be filed within 30 days after the assessment is issued to be timely. The actual notice should be reviewed for the specific petition rights, instructions, and applicable deadline.

Who hears an appeal of an EDD payroll tax assessment?

Payroll tax petitions are handled through the California Unemployment Insurance Appeals Board, or CUIAB. CUIAB is separate from the EDD and provides independent administrative review of employment tax disputes.

Can I appeal an EDD worker classification determination?

Worker classification is specifically among the issues that can lead an employer to challenge an EDD assessment. The appeal may require analysis of the applicable classification standard, the actual working relationships, supporting documentation, and the payroll tax consequences asserted by the EDD.

Does filing an EDD appeal stop interest?

Generally, no. Interest can continue to accrue on the unpaid assessed amount while a Petition for Reassessment is pending. An employer may consider paying the assessment to limit additional interest while continuing the dispute, depending on the circumstances.

Can a CPA represent me in a CUIAB tax appeal?

Yes. CUIAB materials state that a party may be represented at the administrative hearing by a CPA, accountant, attorney, or other representative. EDD payroll tax appeals frequently involve accounting records, payroll calculations, worker classification, and other tax issues for which CPA analysis may be important.

Disagree With an EDD Payroll Tax Assessment?

Do not assume the auditor's conclusions are the end of the matter. If you have received an EDD assessment, we can review the findings, determine what is being disputed, and help you evaluate the next step while important deadlines remain open.