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. 

John explains, “What you can expect from us, whether you have a balance owed to the IRS or the State of California, an audit or a criminal matter, are dedicated and passionate 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.”

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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.

The Process of Working with Milikowsky Tax Law

The process begins with a personal meeting. We conduct an interview to get a good understanding of your business. Our goal is to get the right documents from your team and analyze everything. Once we’ve collected these documents, we give you a debrief and provide a roadmap from the starting point and the finish line. 

Later on in the process, government interaction becomes more common. We begin building the right documents and looking at your data to support our theories. Without actual evidence, you can’t really resolve cases.

What we need from you

We need access to specific data in your records including:

  • Your accounting records
  • Your transactional documents
  • Interviewing your workers, 
  • Interviewing other business associates

Once we collect this information, we submit it to the government. At the end of the day, our goal is to provide value to both you and your business.  Be prepared for EDD to match your federal and state tax returns and cross-reference to make sure the numbers are correct across the board. 

Understanding the technical terminology used and the reasoning behind your data is essential. If you have a ‘bonus’ attributed to a 1099 employee it can be problematic, as 1099 contractors do not receive bonuses. 

How do I know if I’ve been audited?

When a client has an audit, they get a letter from the government that says we are requesting records for a routine investigation. It usually arises because somebody who worked for your company as a contractor filed for unemployment. EDD would then investigate your company to see if you have other contractors potentially misclassified. 

The process begins with the letter from EDD. When you receive that letter, contact your attorney.

The Contractors State Licensing Board (CSLB) has been known to perform random site sweeps to find unlicensed workers on construction sites. This can spark the criminal investigation for your business.

The Interview Process

A few of the questions we’ll ask include:

  • What does it mean to be a contractor? 
  • Do you have a real business? 
  • Are you doing advertisements? 
  • Do you have your own client base? 
  • Why do you believe yourself to be an independent business owner?

As your attorney, my job is not to feed them information. Rather, my job is to make sure they understand the questions EDD will ask when they come to your business.  Understanding what it means to be an independent contractor is actually fairly technical.

How long does an IRS audit last?

Pre-COVID, an IRS audit would probably say an average of six to nine months. With COVID, you could be looking at closer to a year to a year and a half. In the past, IRS has been known to lose documents, not intentionally, however with remote work, it has become more common. 

With EDD, it needs to be simple.

EDD drives phone conversations rather than meeting in person. Because of this, the process becomes slower. 

When we present something to them, it has to be simple. So we take really complicated information that you have in your business and we simplify it so that anybody can understand it and it’s not as disputable.

How is an EDD audit case resolved?

Typically, it takes a lot of negotiation The final step in this process is to discuss the facts with the government and the auditor and ensure they look through the documents. 

At the end of this process, you’re going to get a letter from the government that says, you owe money or you do not owe money. Our goal is for you to not owe money.  If there’s going to be an assessment, hopefully, it’s a minimal assessment because we’ve done our job to convince the government that there hasn’t been a deviation from what should have happened. 

At the end of the day, the government wants to make sure that your business is in compliance with the law. 

Have more questions about EDD audits? Connect and ask us! We’d love to hear and answer your questions.

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