rs-california-payroll-tax

Should I Hire the CPA Who Prepared My Tax Return to Represent Me in an Audit?

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So your CPA maybe the best CPA in the world and this conversation is not to suggest it anything negative about CPAs whom we work with all the time, who are a huge asset to our practice and I don’t think any of the CPAs that we work with would have any problem with me saying this. The CPAs generally are not good in audits and they’re not good because they don’t do a lot of audits. From a CPA perspective, a CPA is compliance based. CPAs are focused most of the time on preparing returns and preparing them accurately. They have a whole living based on being a CPA which is a certified public accountant. A certified public accountant is an individual who is certified to prepare financial statements so the reality of the situation is when a CPA is charged with compliance, and if there is any doubt as to that compliance meaning, there are errors on the tax return the CPA prepared, then there’s a natural conflict of interest because either

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What Is a Dual Determination?

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So a dual determination happens when you have a situation with a business that either accrues payroll tax liability or sales tax liability. What happens in that case is when you have a payroll tax or sales tax liability with the business, the state or the IRS can hold the officers of the company responsible personally if they did not pay those taxes. So there’s certain taxes that we refer to as trust fund taxes and those are monies that are held in trust for the benefit of somebody else so a common example of this has to do with payroll taxes. When you don’t pay payroll taxes there’s a portion of those payroll taxes that are the employer’s responsibility but there’s also a portion which are the employees responsibility. So for the employees portion of those taxes, the government can hold you responsible for that. What a dual determination really hinges on is who is responsible for the non-payment of taxes, whether they had knowledge or whether they were aware of the fact that taxes weren’t getting paid, and whether they could have done something to pay those taxes. So generally speaking if you are aware of a liability and you chose to pay other creditors that warrant, the government is going to hold you liable. So the dual determination process is a very strategic one because when you have a situation where you have multiple officers

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What Is the EDD Appeals Process Like?

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So if you can’t reach a resolution in a payroll tax audit you have essentially three options. The first option is to deal with the auditor and their manager. Oftentimes this can be problematic. Obviously this depends on the two people that are involved and people are people. Like any other organization, you get good people and you get bad people so depending on the relationship with the auditor that’s been developed during the course of the audit and depending on the relationship of the manager, it’s going to change the dynamic on how things are resolved at that level. Going to the manager is always an option. Generally speaking, the audit manager is going to back their auditor’s determination. It’s not like the manager is going to sit there and throw the auditor under the bus. The purpose of bringing in the manager is you get somebody more senior. You get somebody who usually is a former auditor but who has exposure to dealing with these issues and can often resolve tensions if they popped up in the audit process by being kind of a third party representative for the government to come in and resolve the situation. The managers don’t really like dealing with these issues. They would rather their auditor deal with these issues and not go to the manager but there is a possibility. Above the manager of the EDD level, you also have the head of the audit division.

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What Does AB5 Mean From a Tax Perspective in California?

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So in January of 2020, California Legislature passed AB5 which governed the relationship between companies and their workers. Basically what AB5 states is that unless a hiring entity can prove that a worker is truly independent according to three specific factors, that worker will be deemed to be an employee of the company itself. The factors are number one, the company must not have in any condition of control over the work. Number two the worker services must be outside the core business or the hiring entity and number three the worker must maintain their own separate and independent business. So this was all raised with much fanfare and rightly so was called the death of independent contractors in California because unless you qualify for one of the exemptions that’s under the statute, pretty much all workers fall within an AB5 framework and they can be deemed employees. It’s only those that are providing true outside services like they have bookkeeper or CPA or law firm or videographer that really qualify outside the scope of AB5. The statute really is meant to pull as many people as possible into the employee relationship however from a tax perspective despite all the fanfare on the labor side, it doesn’t really have any impact. The reality of the situation is that the EDD has been using an AB5 framework for quite some time. So what I mean by that, well the reality is that when you go through an employment tax audit, EDD is already looking at control. Control was a previous factor under the old past and now really

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