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Employment Tax Petitions and Hearings Before the California Unemployment Insurance Appeals Board

1. The CUIAB

If you have received a tax assessment from the California Employment Development Department (EDD), you may be considering filing a petition to contest that assessment with the California Unemployment Insurance Appeals Board (CUIAB). The CUIAB is a quasi-judicial independent governmental agency. Like the EDD, the Board is subject to the California Unemployment Insurance Code and other relevant California law, but it is not a part of the EDD.

2. The Appeals Process

The CUIAB states the following on its own website:

"The appeals process can be a very daunting experience for individuals without a law degree. All of the legal references to codes, regulations and procedures tend to be overwhelming."

Indeed the appeals process can be daunting. However, here are some general guidelines regarding what to expect in the CUIAB petition process, as well as the process of appeal following a judicial determination of a petition.

a. You have 30 days from the date of the mailing of your EDD Notice of Assessment in which to file a timely appeal. (Plus a few additional days for holidays, "terminal" weekends, and a mailing extension. However, it is safer and simpler to file within 30 days.)

b. If you do not file within this 30 day period, you are granted an additional 30 days for "good cause." According to the legal authorities which bind the CUIAB, good cause means "something more than mere excuse." It must be "a substantial reason that affords a legal excuse accompanied by that degree of diligence which men of ordinary prudence would have used under similar circumstances." In other words, it had better be a "good" excuse! Not paying attention to the deadline, or not being otherwise diligent will not suffice.

c. An appeal or petition need not be formal, nor is it required to be prepared in any special form (a letter will do). Appeals and petitions must be in writing and include the following: 1) the name and mailing address of the appellant or petitioner, 2) the employer account number, if any, of the appellant or petitioner, 3) the name and mailing address of any representative filing the appeal or petition; and 4) the name and social security number of any claimant who is a party. The appeal may also include the appellant or petitioner's telephone and/or electronic address; the date and case number of the underlying department action; a concise statement of the reasons for the appeal or petition; any request for language assistance or special accommodation; and the appellant or petitioner's signature and the date signed.

d. Following a timely petition, the CUIAB will send you a Notice of Hearing with a date for your appearance before an Administrative Law Judge, or ALJ. The EDD will issue a response to your petition. Pay close attention to any issues the EDD raises in dispute of your petition. The EDD, however, usually saves its major contentions for the hearing, itself. Typically, you will be asked to submit all evidence and additional materials regarding your case before the date of the hearing. However, the ALJ's tend to allow parties to bring in their evidence the day of the hearing. You should bring all relevant documentation with you to the hearing, as well as any witnesses you wish to testify on your behalf. If you plan on presenting more than five or six witnesses you may want to ask for an additional day(s) of hearing.

e. The Appeals Board and its representatives and administrative law judges are not bound by common law or statutory rules of evidence or by technical or formal rules of procedure but may conduct the hearings and appeals in such manner as to ascertain "the substantial rights of the parties." In other words, the ALJs have a wide latitude of discretion regarding what they will accept as testimony and evidence. That being said, the ALJ will expect all evidence to have a tendency to prove or disprove a matter in dispute, and to be relevant to that end.

f. Be on time to the hearing, or your petition may be dismissed by the ALJ for nonappearance.

g. The ALJ's tend to be helpful to the petitioners, especially when they are not represented by counsel or a CPA. However, it helps to be respectful, attentive, and aware that this is a legal procedure before a judge.

h. Being the taxpayer/petitioner, you have the "burden of proof" to prove to the ALJ that you are right. This means that it must be more-likely-than- not that you are correct. It is an uphill battle, because, by law, a California tax is presumed to be correct.

Once the hearing begins, the ALJ will explain the process and "swear in" the witnesses. Typically, the ALJ will either interview the witnesses first, usually starting with the EDD, or will allow the respective representatives of the EDD and the petitioner to interview the witnesses. There is an opportunity for each party to cross examine and re-examine the witnesses. It is in this process that quality representation becomes especially valuable. The EDD can be quite aggressive in its approach to these tax hearings. They are usually represented by an EDD attorney, and occasionally represented by what they call a "Hearing Representative." These Hearing Representatives tend to be former auditors who are trained in the hearing procedures. Either way, the EDD takes an aggressive approach in defending its audits. They see it as their duty to defend the tax audit and to collect revenue.

3. The Effects of a CUIAB Hearing and Potential Hazards of an EDD Assessment

As you may know, what is at stake in a tax petition of an EDD assessment is not only the amount of the liability, but many times it is the defense of a business model at stake, as well. It is very common, upon receiving a winning decision, the EDD will scrutinize very closely the following quarters of payroll tax reporting of the petitioner's business, in order to determine whether or not it is properly reporting, according to the decision by the ALJ. If you believe that you are, for instance, using legitimate independent contractor labor, and have been assessed for "misclassification of workers" by the EDD, such assessments usually include substantial penalties and interest, along with the tax liability for periods ranging from three tax years up to the entire history of what the EDD sees as "misclassification." A negative decision regarding worker classification can permanently alter the way you do business.

The law surrounding the issue of worker classification can be rather complicated when applied to real-world business activities. The EDD is oriented toward finding "employment" status and the laws of California have developed to that end, as well. However, this does not mean that the use of independent contractors is illegal in California. It is not. The critical issue regarding classification of workers is how those workers were treated by the business. Simply put, the issue tends to revolve around whether there was control exerted over the workers, whether those workers were sufficiently integral to the business, and whether the workers were in a separately established business of their own. There are many more factors which are analyzed in a worker classification determination. The aforementioned three factors tend to be major considerations in a hearing before the CU IAB.

Worker classification is not the only petitionable issue stemming from EDD assessment. For example, the EDD can issue incorrectly estimated assessments, erroneous assessments for payments to corporate officers/shareholders, or incorrectly applied penalties to otherwise legitimate assessments. In addition, the EDD calculations of its liabilities can be flawed, as well.

Williams and Associates regularly and successfully appears before the CUIAB in tax hearings and subsequent appeals. In addition, it is often the case that representation during the audit phase can eliminate or minimize the impact of an EDD audit, therefore eliminating the need for petition. While a business is not required to be represented by an attorney in the proceedings before the CUIAB, it is quite helpful to have someone representing you in what can be a "daunting experience."

4. Appeal Following a Decision by the ALJ

Should you receive a negative decision from the ALJ, you will have the same 30 day/30 day period in which to file an appeal before the Appeals Board of the CUIAB. The Appeals Board is comprised of seven members. Five are appointed by the Governor, one by the Speaker of the Assembly and one by the Senate Rules Committee. Typically, this appeal consists of a review of the recording and/or transcripts of the hearing and filing a written brief to explain to the Board why the ALJ's decision was wrong. The Board will then consider the arguments of both parties and render a decision, either confirming or rejecting the ALJ's decision.

The legal arguments required to overturn and ALJ's decision are seldom simplistic. Here, as in a petition hearing, it helps to be represented by someone familiar with the law and the proceedings.

5. Conclusion

In filing your petition, pay attention to the deadlines and - whether you represent yourself or are represented at the hearing - make certain you can persuade a judge that you are right regarding the issues.

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