Awards & Recognition
San Diego’s dynamic economy, driven by industries such as military defense, tourism, healthcare, and biotechnology, has shaped its approach to employment practices. Known for its highly specialized sectors, the city sees many businesses turning to independent contractors as a flexible workforce solution. This shift enables companies to reduce costs associated with full-time employees, such as workers’ compensation insurance, payroll taxes, and benefits.
However, the city’s highly regulated industries, including defense and healthcare, often face strict scrutiny from both Federal and California state tax authorities. Misclassifying workers as independent contractors instead of employees can lead to significant legal and financial challenges. Without proper employment tax guidance, businesses may inadvertently expose themselves to civil and criminal tax penalties and back taxes if audits reveal discrepancies in worker classification.
The California Employment Development Department (EDD) primarily conducts audits to ensure businesses pay the proper amount of payroll taxes. Failure to collect and remit state payroll taxes could lead to federal of California criminal charges stemming from an EDD or IRS criminal employment tax investigation. If you fail to collect and remit state payroll taxes, you could face charges stemming from an EDD or IRS employment tax investigation. San Diego’s dynamic metropolitan area, with its thriving tourism, military, and biotech sectors, can give the impression that the EDD, IRS, and other tax enforcement agencies are unable to monitor all the economic activity across the city effectively. Other business owners may believe that the cash receipts they receive are untraceable by tax authorities and create an opportunity to underreport income or cash basis payroll expenses that are not reported on worker’s 1099s or W2s. Unfortunately, these assumptions are recklessly illegal and can create a scenario where potential harsh civil and criminal tax penalties – including a prison sentence – are justified. Auditors for federal and state tax agencies simply follow the paper trail. If a company’s books or records are missing, disorganized, believed to be fraudulent, or otherwise not reliable, the agent may even set aside the books and resort to alternate methods.
Whether you are concerned about a criminal employment tax investigation, need assistance preparing for a payroll tax audit, or simply wish to review your company’s payroll tax procedures for accuracy and efficiency, rely on the dual-licensed San Employment Tax Attorneys and CPAs at the Tax Law Office of David W. Klasing for award-winning support. Assisting C corporations, S corporations, LLCs, partnerships, sole proprietors, independent contractors, and freelancers, we have the insight and expertise your business needs. Our dual-licensed San Diego IRS and EDD Tax Audit Lawyers & CPAs can prepare you for an employment tax audit, negotiate with them on your behalf throughout the audit process, and, if you are dissatisfied with the results of the audit, potentially aid you in “appeals,” or the process of challenging an auditor’s findings and where necessary, Tax Litigation. Both state (EDD) and federal (IRS) audits may be appealed, though strict procedural rules apply. Our IRS Audit and Appeals Lawyers or EDD Tax Audit Lawyers are happy to answer your questions about state or federal tax appeals, the rules for appealing an audit, and other audit-related issues, including worker classification audits, California and federal employment tax audits, Payroll Tax (EDD), Misclassification of workers, and more.
Call (619) 780-2538 or 888-564-1409 or contact us online today to schedule a reduced rate initial consultation.
EDD Employment Tax Fraud: Criminal Investigations and Consequences
The EDD is responsible for administering California’s Unemployment Insurance, Disability Insurance, Paid Family Leave, and Employment Tax programs while collecting employment payroll taxes across the state. A significant part of the EDD’s mission is to detect and deter fraud within these programs. To accomplish this, the EDD employs various methods to uncover fraudulent activity, thoroughly investigates suspected violations, and routinely pursues criminal tax prosecution against those who intentionally evade California payroll related obligations.
Common Forms of EDD Criminal Tax Fraud
Several actions can expose employers to criminal tax investigations by the EDD, including:
Underreporting or Failing to Report Payroll Taxes:
Employers who withhold taxes from employee wages but fail to remit them to the EDD or other authorities are at risk of criminal employment tax prosecution. This includes instances where wages are reported inaccurately or not reported at all.
Off-the-Books Payments:
Paying workers off the record to avoid payroll taxes or deliberately underreporting wages to the EDD can result in severe penalties and potential jail time. A combination of reported W2 wages and non reported cash payments can also cause criminal employment tax exposure especially where the cash payments are not reflected on a W2 or a 1099. Prosecution for aiding and abetting the income tax evasion of your workers is also possible.
Manipulating Employment Records:
Providing false start dates or omitting new hires from the EDD’s reporting requirements constitutes fraud and can trigger an criminal employment tax investigation.
Pattern of Avoidance:
Some businesses engage in a recurring practice of opening and closing accounts with the EDD under different business names to evade employment tax liabilities. This pattern of behavior is a significant red flag for authorities.
False Claims and Deceptive Statements:
Knowingly making false statements to reduce the cost of Workers’ Compensation Insurance or providing misleading information to deny benefits to eligible workers can lead to criminal charges.
The Importance of Intent in EDD Fraud Cases
For the EDD to successfully pursue criminal tax charges, there must be evidence that the employer’s actions were willful—meaning the fraudulent behavior was intentional and designed to evade tax obligations rather than the result of an honest mistake. When the EDD suspects that an employer’s conduct was deliberate, the case may escalate to include criminal tax penalties, significant fines, and possible imprisonment.
Criminal tax investigations by the EDD often have profound implications. Employers found guilty of intentional fraud may face not only steep financial penalties but also damage to their business reputation and the possibility of a criminal record. In more severe cases, the EDD may collaborate with other state and federal agencies, such as the California Franchise Tax Board (FTB) or the IRS, to pursue further criminal tax prosecution.
If you suspect your business may be under scrutiny by the EDD for potential employment tax violations, it is critical to consult with experienced legal counsel. At the Tax Law Offices of David W. Klasing, we can help you navigate the complexities of California employment tax law and mitigate potential criminal tax liability. We can work to enroll you in a voluntary disclosure program before California begins auditing you or initiates a criminal tax investigation. If it’s too late for that, we will tirelessly fight to mitigate the damage and limit your criminal exposure as much as possible. We aim to achieve the most significant possible reduction of civil assessments, additional tax penalties, interest, and other undesirable criminal tax consequences. If you do not wish to accept a preindictment deal, we are fully prepared to defend you at trial.
We excel at representing clients under high-risk federal or California state tax audits, especially where they blatantly cheated on the tax return under audit and thus fear criminal tax prosecution. When facing high-risk tax audits from agencies like the IRS, EDD CDTFA, or FTB, certain red flags, such as destroyed records, underreported income, badges of fraud, or unfiled returns, can intensify the examination and may lead to high-risk eggshell and reverse eggshell tax audits. When you are ready to discuss your tax situation, either as a business or as an individual, contact the Tax Law Offices of David W. Klasing today to schedule a 10-minute reduced rate initial consultation with an experienced dual-licensed EDD Tax Attorney & CPA. We offer San Diego tax services that are relevant to any tax situation you may encounter.
Understanding the Office of Tax Appeals (OTA) and Appealing an EDD Audit in San Diego
In San Diego, as in the rest of California, tax appeals and litigation encompasses a complex system of courts and agencies designed to resolve various tax disputes. While federal tax disputes ty
pically go before the United States Tax Court, taxpayers may also choose to litigate in the United States District Court or the United States Court of Federal Claims. The primary venue for state-level tax disputes in San Diego is the California Office of Tax Appeals (OTA).
The Role of the California Office of Tax Appeals (OTA)
Established in 2017 by Assembly Bill (A.B.) 131 under the Taxpayer Transparency and Fairness Act, the OTA is an independent entity that reviews disputes between San Diego taxpayers and state tax agencies, which include:
- The Employment Development Department (EDD)
- The Franchise Tax Board (FTB)
- The California Department of Tax and Fee Administration (CDTFA)
Appealing an EDD Audit in San Diego
If your San Deigo-based business is dissatisfied with the results of an EDD employment tax audit, it’s essential to know that you have options to appeal:
- Filing an Appeal: Appeals to the OTA must be submitted within a specific timeframe following receipt of the audit results.
- Review Process: The OTA has the authority to review the audit findings thoroughly and can either overturn or adjust the results if errors are found.
- Legal Representation: Engaging a seasoned tax attorney is crucial for navigating the appeal process effectively. An attorney will help ensure all necessary documents are accurately submitted and argue your case, maximizing your chances of a favorable outcome.
Mistakes in applying the law or assessing facts during an EDD audit are common. These errors can lead to inaccurate findings and unjust financial consequences for your business. California law provides a structured appeals process through the OTA, allowing San Diego businesses to challenge audit results and rectify inaccuracies. Whether you have recently been notified that you were selected for an audit and need help navigating the following steps or have already been audited and are now seeking California or IRS appeals representation, our aggressive EDD negotiators and, where necessary, San Diego California State FTB, EDD, CDTFA Tax Litigation Attorneys & CPAs stand ready willing and able to litigate your tax case. Still, we find that the taxing authorities are more than willing to settle on fair and equitable terms once we convince them that the law and facts are on your side and we can prove it. To date, we have never lost in federal tax court. We won’t take your case if we don’t believe we’ll win.
Contact Our San Diego Employment Tax Attorney Today
If you have been contacted for a tax audit and are concerned about specific underlying issues, it is prudent to contact a tax attorney immediately. If criminal tax charges are a concern, you must speak to a lawyer because only the attorney-client privilege or work product doctrine is sufficient to protect any disclosures you may make from being used against you by the very representative you hire to help if they are non-attorneys. Returning to your original accountant or a tax preparer can result in the preparer attempting to defend their license by blaming the taxpayer. If they are subpoenaed to testify against you, no privilege exists that will protect disclosure, and you should fully expect the non-attorney’s testimony to be unfavorable. David W. Klasing is a dual-licensed Tax attorney & CPA with a master’s degree in taxation, nearly three decades of experience and is committed to preserving your best interests in worker classification audits and against allegations that you owe payroll taxes. Whether you have concerns about corporate tax liability or employment tax, call (619) 780-2538 or 888-564-1409 or contact us online today to schedule a reduced rate initial consultation. To date, We have never had one of our federal or California audit clients criminally prosecuted for tax crimes.
Our San Diego Office is Conveniently Located at:
501 W Broadway Suite 300
San Diego, CA 92101
(619) 780-2538
