TAX
COMPLIANCE
GUIDELINES
DE 83 Rev. 1 (4-18) (INTERNET) CU
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TAX
COMPLIANCE
GUIDELINES
DE 83 Rev. 1 (4-18) (INTERNET) CU
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TABLE OF CONTENTS
CHAPTER PAGE
NUMBER
1. INTRODUCTION
Introduction 1
Collection Program Functions 2
Central Operations Functions 3
Field Operations Functions 3
Promote Voluntary Compliance 4
Authority to Enforce Collection 5
Collection Policies 6
Prohibited Collection Activities 7
2. REPORT DELINQUENCIES
Report Delinquencies 1
Report Delinquencies -Historical 2
Payroll Tax Deposits 3
Quarterly Contribution Return and Report of Wages
Continuation (DE 9C) 3
Quarterly Contribution Return and Report of Wages (DE 9) 5
Quarterly Wage and Withholding Report (DE 6) 6
Annual Reconciliation Statement (DE 7) 7
Quarterly Contribution Return (DE 3) 8
3. COLLECTION MANAGEMENT
Collection Management 1
Time Frames 2
Reimbursable Accounts 2
4. CONTACT EMPLOYER
Contact Employer 1
Entity Verification 2
Other Entity Types 6
First Personal Contact 8
Identify the Taxpayer 9
Payment History 9
Phone Contacts 9
Office Meeting 10
Preparation for the Field Call 11
Returning to the Office 11
Collection Letters 12
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TABLE OF CONTENTS
CHAPTER PAGE
NUMBER
5. ESCROWS
Escrow 1
Responsibility for Demand and Clearance 3
Sale of a Business 4
Excess Funds 8
Home Equity Loans 8
Surplus Funds 8
Liquor License 9
Mortgage Refinance 9
Personal Property 10
Real Property 11
6. INVOLUNTARY COLLECTION DETERMINATION
Involuntary Collection Determination 1
Type of Involuntary Action 2
7. STATE TAX LIEN/NOTICE OF STATE TAX LIEN
State Tax Lien/Notice of State Tax Lien 1
Employer Notification 2
Required Information 3
Lien Priority 3
Purpose of a State Tax Lien 4
County Lien Fees 4
Secretary of State Filing Fees 4
Lien Extensions 5
Notice of State Tax Lien Identification 5
Lien Releases 6
Erroneous Liens 6
Liens That Are Not Erroneous 7
8. CONTRACTORS STATE LICENSE BOARD
Licensing 1
License Requirements 1
Issued to Correct Entity 1
Valid Time Period 2
Requesting a CSLB Hold 2
Sample of Demand Letter to Contractor 3
9. FARM LABOR CONTRACTORS
Farm Labor Contractors’ Licenses 1
Expiration Dates 1
License Demand Notification 1
Sample of Demand Letter to FLC 2
Sample of Stop Order 3
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TABLE OF CONTENTS
CHAPTER PAGE
NUMBER
10. INTERAGENCY OFFSETS
Interagency Offsets 1
State Offsets 1
FTB Interagency Intercept Collection Program 2
Multiple PIT Offset Priorities 3
Other State Agencies’ Offsets 3
Security Deposits 4
Federal Levy 4
Federal Offsets 4
Bureau of Fiscal Service Offset Process 5
Priorities for Federal Offset 5
11. INTERIM REPORTING
Interim Reporting 1
Requirements for Interim Reporting 1
Termination of Requirement 2
12. LIQUOR LICENSE HOLD
Liquor License Holds 1
Type of License 1
Liquor License Demands 2
Establish Liability for Liquor License Demand 3
Insufficient Funds in Escrow Pro Rata 4
Disbursement of Money in Escrow 4
Payment Received 4
13. NOTICE OF LEVY
Notice of Levy 1
Issuance 2
Method of Service 2
Results 2
Process Payments 3
14. OFFERS IN COMPROMISE
Offers in Compromise 1
Conditions Required for Consideration 2
Forgiving Amounts of $10,000 or More 3
Case Assignments 3
Approved Applications 3
Denied Applications 4
Rescission 4
Processing a Rescission 4
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TABLE OF CONTENTS
CHAPTER PAGE
NUMBER
15. INSTALLMENT AGREEMENTS
Installment Agreements 1
Types of Agreements 1
Required Documentation and Approval 4
Acceptance 7
Denial 7
Monitoring 7
Default 8
16. ASSIGNMENT FOR BENEFIT OF CREDITORS, RECEIVERSHIP
Assignment for Benefit of Creditors 1
Receivership 1
Notification 2
Duties and Responsibilities 2
EDD Claims for Assignments and Receiverships 3
17. PROBATE
Probate 1
Types of Estate 2
Authority of Personal Representative 2
Responsibilities of Administrator or Executor 2
Sources of Information 3
When to File the Claim 3
Collection Staff Processing 4
18. DISCHARGE FROM ACCOUNTABILITY
Discharge From Accountability 1
Application for Discharge From Accountability 1
Authorization to Forego Collection of State Debt 2
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CHAPTER 1 INTRODUCTION
INTRODUCTION The Employment Development Department (EDD) administers
the Unemployment Insurance (UI) and Disability Insurance (DI)
programs for the S tate of California. The E DD Tax Branch
collects contributions for UI, DI, and the Employment Training
Tax (ETT). The contributions are used to fund the UI, DI, and
employment training programs. These programs provide
financial assistance to individuals who:
• Become unemployed through no fault of their own.
• Are in need of occupational retraining to help them return to
the workforce.
• Are too ill or injured to work due to non-work related causes.
Tax Branch collects California Personal Income Tax (PIT) that
employers withhold from their employees' wages. When these
funds are remitted to the EDD, they are transferred to the
Franchise Tax Board (FTB). In addition, Tax Branch has
contracted with the Department of Industrial Relations (DIR) to
collect various fees and penalties.
Collection Division (CD), a division within Tax Branch, is
responsible for administering the employment tax and benefit
overpayment collection programs. The employment tax
programs are designed to encourage voluntary compliance by
employers, claimants, and their representatives. Involuntary
collection action may be necessary to reach the goal of full
compliance.
The principal mission of CD is to maximize accounts receivable
collections and promote voluntary compliance. CD has
programs that qualifying employers may use if the full liability
cannot be paid. Programs include offers in compromise and
installment programs. CD may use statutory involuntary
collection action to collect contributions from employers and
responsible persons. CD secures delinquent tax returns to
ensure timely and prompt resolution of claims for benefits and
collects liabilities that are owed to the EDD.
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CHAPTER 1 INTRODUCTIO N
INTRODUCTION CD must responsibly serve the needs of the people of California
(cont’d.) in an efficient and effective manner. CD strives to incorporate a
balanced approach by providing quality customer service while
posting unfiled tax returns to the system and collecting final
liabilities.
CD is comprised of three major operations:
• Central Operations (CO)
• Field Operations (FO)
• Administration Section
COLLECTION CO and FO staff conducts tax collection activities on assigned
PROGRAM and unassigned delinquent accounts that include:
FUNCTIONS
• Working with employers, internal customers, and other
governmental agencies to collect and, in some instances,
resolve tax liabilities and delinquencies.
• Ensure long-term compliance with the California
Unemployment Insurance Code (CUIC).
• These activities include:
• Initiating appropriate action for the timely and efficient
resolution of delinquent returns and taxes.
• Monitoring installment agreements.
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CHAPTER 1 INTRODUCTION
CENTRAL CO provides the following essential advisory and/or support
OPERATIONS services to:
FUNCTIONS
• Provide customer service and account resolution to
employers and claimants who contact the EDD because
they received delinquency notification(s) and/or collection
activities were commenced against the employer and/or
responsible person.
• Process bankruptcy and probate claims.
• Process Notices of State Tax Lien, including subordination
and partial releases.
• Process liquor and contractor license holds.
• Assist with complex legal problems and refer complex
cases to the Office of the Attorney General for advice and in
some cases counsel.
• Administer the Offer in Compromise (OIC) program.
• Facilitate Interagency Intercepts.
• Collect UI and DI benefit overpayments.
• Collect various DIR fees and penalties.
• Attend tax hearings on behalf of the EDD.
FIELD FO conducts collection activities on the assigned delinquent
OPERATIONS tax accounts that may require collection actions and contact
FUNCTIONS with employers, representatives, and responsible persons for
resolution.
A field investigation is often necessary in order to resolve a
delinquent account. Field staff are permitted to conduct
on-site meetings with employers at their places of business.
Field staff may also conduct inspections to evaluate business
activities and properties.
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CHAPTER 1 INTRODUCTION
FIELD FO also provides the following functions:
OPERATIONS
FUNCTIONS • Attend tax hearings on behalf of the EDD.
(cont’d.)
• Initiate holds on liquor, farm labor, and contractor licenses.
• Initiate compliance complaints and citations.
• Initiate the issuance of warrants for the seizure and sale of
real and personal property.
• Meet with delinquent taxpayers to secure payment of
amounts due, review financial statements, and determine
ability to pay.
• Receive and respond to initialcontacts thatrequest
subordination of liens.
• Initiate collection actions.
PROMOTE To improve service to employers, maintain good customer
VOLUNTARY service, and encourage voluntary compliance with the CUIC, Tax
COMPLIANCE Branch provides the following:
• California Employer Newsletter
• California Employer’s Guide (DE 44)
• Household Employer’s Guide (DE 8829)
• Internet access to the EDD at www.edd.ca.gov
• Outreach seminars
• Small Business Employer Advisory Committee
• e-Services for Business
• Facebook, Twitter, and YouTube
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CHAPTER 1 INTRODUCTION
AUTHORITY TO The laws authorizing CD to enforce collection activities are
ENFORCE contained in the following:
COLLECTION
• Business and Professions Code
• Civil Code
• Code of Civil Procedure
• Commercial Code
• Corporations Code
• Family Code
• Government Code
• Penal Code
• Probate Code
• Revenue and Taxation Code
• California Unemployment Insurance Code
• United States Bankruptcy Code
• United States Code
• California Code of Regulations
• Code of Federal Regulation
When voluntary compliance is not obtained, CD may take
involuntary collection actions. These actions may include:
• Citation hearing
• Compliance complaint
• Earnings Withholding Orders for Taxes (EWOT)
• Earnings Withholding Orders (EWO)
• Lien on cause
• Notice ofLevy (NOL)
• Notice ofState Tax Lien
• Intercept
• Personal responsibility assessment
• Successor liability assessment
• Warrant
• Summary Judgement
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CHAPTER 1 INTRODUCTION
COLLECTION The EDD follows the collection practices contained in the
POLICIES Rosenthal Fair Debt Collection Practices Act (RFDCPA) cited in
Sections 1788 through 1788.33 of the Civil Code. The EDD
endorses the principles listed in the RFDCPA in an effort to
ensure that CD exercise fairness, honesty, and regard for the
rights of the taxpayer during collection activities.
Below are guidelines to be used when contacting taxpayers:
• When talking with the taxpayer:
o Be agood listener.
o Speak in aclear and precise manner.
• Be considerate of the diversified employer community.
• Be flexible in setting appointments.
• Keep the appearance and/or tone of your voice professional.
• Treat the taxpayer in a fair and equitable manner.
• Verify information supplied by the taxpayer.
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CHAPTER 1 INTRODUCTION
PROHIBITED The following types of activities are prohibited under the
COLLECTION RFDCPA, and Tax Branch staff is not to use these collection
ACTIVITIES activities:
TYPE OF ACTIVITY EXAMPLES OF IMPROPER ACTIVITY
Harrassment • Use obscene or profane language.
• Contact a taxpayer without identifying
oneself as a representative of the
EDD.
• Make a taxpayer accept a collect
phone call or pay for a telegram.
• Communicate by phone or in person
with the taxpayer with such frequency
as to be unreasonable and thus cause
harassment.
• Cause a phone to ring repeatedly or
continuously to annoy the taxpayer.
• Use involuntary collection actions (i.e.,
liens, warrants, offsets) while the
employer is bankrupt.
Make threats against • Use, or threaten to use, violence or to
the taxpayer inflict physical harm to the person,
reputation, or the property of any
person.
• Tell a taxpayer they have committed a
crime.
• Disclose information about the
taxpayer to a third party that would
defame the taxpayer.
• Tell a taxpayer they will be arrested or
imprisoned.
• Threaten to take property (i.e., by lien,
warrant, offset, etc.) unless such
action is contemplated and permitted
by law.
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CHAPTER 1 INTRODUCTION
PROHIBITED
COLLECTION TYPE OF ACTIVITY EXAMPLES OF IMPROPER ACTIVITY
ACTIVITIES
(cont’d.) Providing false • Use of false names in the performance
information to a of their duties.
taxpayer or about a
• Falsely state or imply:
taxpayer
o That you are an attorney.
o That legal papers being sent to the
taxpayer have been written by an
attorney.
o That the collector works for a
consumer reporting agency or that
the taxpayer will be reported to
one.
• Misinform the taxpayer regarding the
purpose of the collection action.
• Misinform the taxpayer concerning
their legal rights in the collection of the
debt.
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CHAPTER 1 INTRODUCTIO N
PROHIBITED
COLLECTION TYPE OF ACTIVITY EXAMPLES OF IMPROPER ACTIVITY
ACTIVITIES
(cont’d.) Unfair collection • Communicate with a taxpayer's
activity/practices employer unless necessary to collect
the debt.
• Communicate with a taxpayer's family
except to locate the taxpayer and/or
assets.
• Refer the taxpayer's name to a list
commonly called "Deadbeat List."
• Print anything on an envelope other
than the name, address, and phone
number of the tax collector or
taxpayer.
• Initiate judicial proceedings in a county
other than the county in which the
taxpayer incurred the debt or in the
county where the taxpayer resides.
• Initiate judicial proceedings against a
taxpayer when there is no legal right to
do so.
• Communicate with the taxpayer, other
than with statements of amounts due,
when the taxpayer has requested their
attorney represent them (unless the
attorney fails to communicate with the
collector).
• Collect amounts greater than the debt
due.
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CHAPTER 2 REPORT DELINQUENCIES
REPORT A tax report delinquency occurs when an employer fails to file the
DELINQUENCIES required reports electronically or online through e-Services for
Business at www.edd.ca.gov/e-Services_for_Business, to
comply with the e-file and e-pay mandate, within the time limits
established by the California Unemployment Insurance Code
(CUIC).
Assembly Bill (AB) 1245 requires all employers to file employment
tax returns and wage reports electronically and remit payroll tax
deposits by Electronic Funds Transfer (EFT) to the EDD. This
requirement will be referred to as the e-file and e-pay mandate.
January 1, 2017: Employers with 10 or more employees were
required to file electronically and pay by EFT.
January 1, 2018: All remaining employers are required to file
electronically and pay by EFT.
For more information on this mandate, visit
www.edd.ca.gov/EfileMandate.
Since January 18, 2011, the reports required of most employers
are:
FORM CUIC SECTION
Payroll Tax Deposit, DE 88ALL 1088(b)
Employer of Household Worker(s) Quarterly 1088
Report of Wages and Withholdings , DE
3BHW
Employer of Household Worker(s) Annual 1088
Payroll Tax Return, DE 3HW
Quarterly Contribution Return and Report of
1088(a)
Wages, DE 9
Quarterly Contribution Return and Report of
1088(a)
Wages (Continuation), DE 9C
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CHAPTER 2 REPORT DELINQUENCIES
REPORT Between January 1, 1995, and December 31, 2010, the reports
DELINQUENCIES - required of most employers were:
HISTORICAL
FORM CUIC SECTION
Payroll Tax Deposit (DE 88)/Payroll Tax 1088(b)
Deposit Return Envelope (DE 88E),
DE 88/DE 88E
Quarterly Wage and Withholding Report, 1088(a)
DE 6
Annual Reconciliation Statement, DE 7 1088(e)
Quarterly Contribution Return (Voluntary 1088(c)
Plan), DE 3D
Employer of Household Worker(s) Quarterly 1088
Report of Wages and Withholdings, DE 3BHW
Employer of Household Worker(s) Annual 1088
Payroll Tax Return, DE 3HW
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CHAPTER 2 REPORT DELINQUENCIES
REPORT TYPES Section 1088 of the CUIC requires that a subject employer file
Payroll Tax Deposits (DE 88) electronically or online through
PAYROLL TAX e-Services for Business at
DEPOSITS www.edd.ca.gov/e-Services_for_Business to comply with
the e-file and e-pay mandate to:
Pay employer taxes of Unemployment Insurance (UI) and
Employer Training Tax (ETT).
Submit deposits of Disability Insurance (DI) and Personal
Income Tax (PIT) withheld as required by law.
Deposits of UI and ETT are due quarterly, while withholdings of
DI and PIT are generally due at the same time as federal due
dates. Penalty and interest are charged on late deposits.
For payroll tax deposit payments that are not made electronically,
there is a 15 percent penalty on the amount due.
Effective January 1, 2017, credit cards will be accepted as an
electronic payment that satisfies both the AB 1245 e-file and
e-pay mandate Sections 1088(h)(1) (2) and 13021(d)(1) of the
CUIC. As a result, employers using credit cards to remit DE 88
payments beginning January 1, 2017, will not incur a 15 percent
non-compliance penalty.
QUARTERLY Employers are required to file a DE 9C electronically or online
CONTRIBUTION through e-Services for Business at
RETURN AND www.edd.ca.gov/e-Services_for_Business each quarter
REPORT OF with the following information:
WAGES
(CONTINUATION) • The name and Social Security number of each employee.
(DE 9C) • Total subject wages for each employee.
• The PIT wages for each employee.
• Amount of PIT withheld for each employee.
• Grand total of subject wages, PIT wages, and PIT withheld for
the quarter.
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CHAPTER 2 REPORT DELINQUENCIES
QUARTERLY The DE 9C is due January 1, April 1, July 1, and October 1 each
CONTRIBUTION year. If the filing due date falls on a Saturday, Sunday, or legal
RETURN AND holiday, then the filing date is the next business day. The DE 9C
REPORT OF is delinquent if not received electronically within 30 days after the
WAGES due date.
(CONTINUATION)
(DE 9C) The information from the DE 9C is used to:
(cont’d.)
• Post wage information.
• Calculate UI and DI benefits.
• Update the Franchise Tax Board (FTB) PIT Table, which
provides PIT withholding figures.
Even if an employer has no employees for a particular quarter,
but anticipates employees in future quarters, a DE 9C must be
filed quarterly, either electronically or online through e-Services
for Business. An automated search identifies missing returns and
issues a demand for the missing DE 9C.
After the demand is issued and the employer does not file a
DE 9C, a Section 1114 of the CUIC penalty will be added. The
Section 1114 penalty is $20 ($10 for periods prior to the 3rd
quarter 2014) for every item listed on the DE 9C.
Penalties for non-compliance with the e-file and e-pay mandate
are $20 per wage item.
If a reporting error has been made on a previous DE 9C, a
Quarterly Contribution and Wage Adjustment Form (DE 9ADJ)
should be used to file the corrected information.
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CHAPTER 2 REPORT DELINQUENCIES
QUARTERLY Employers are required to file a DE 9 quarterly to reconcile payroll
CONTRIBUTION tax deposit payments submitted during the quarter for
RETURN AND withholdings of DI and PIT, employer payments of UI and ETT,
REPORT OF and to reconcile the total subject wages reported on the DE 9C.
WAGES (DE 9) The DE 9 is due January 1, April 1, July 1, and October 1 each
year. If the filing due date falls on a Saturday, Sunday, or legal
holiday, then the filing date is the next business day. The DE 9 is
delinquent if not received electronically within 30 days after the
due date.
A final DE 9 must be filed within 10 working days after an
employing entity closes a business.
A DE 9 must be filed each quarter even if there is no payroll
during the quarter. If the employer fails to file a completed DE 9
within 60 days of the due date, an estimated assessment is
issued for that quarter. In addition, a Section 1112.5 of the CUIC
penalty of 15 percent (10 percent for periods prior to the 3rd
quarter 2014) of the estimated contributions and PIT withheld will
be charged. Penalties for non-compliance with the e-file and
e-pay mandate are $50 per return.
If a reporting error has been made on a previous DE 9, a
DE 9ADJ should be used to file the corrected information.
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CHAPTER 2 REPORT DELINQUENCIES
QUARTERLY Between January 1, 1995, and December 31, 2010, employers
WAGE AND were required to file a Quarterly Wage and Withholding Report
WITHHOLDING (DE 6) each quarter with the following information:
REPORT (DE 6)
• The name and Social Security number of each employee.
• Total subject wages for each employee.
• The PIT wages for each employee.
• Amount of PIT withheld for each employee.
• Grand total of subject wages, PIT wages, and PIT withheld
for the quarter.
The information from the DE 6 was used to:
• Post wage information.
• Calculate UI and DI benefits.
• Update the Franchise Tax Board (FTB) PIT Table, which
provides PIT withholding figures.
Even if an employer has no employees for a particular quarter,
a DE 6 must be filed quarterly if it is anticipated that there will
be employees in future quarters.
After the demand was issued and the employer did not file a
DE 6, a Section 1114 of the CUIC penalty was added. The
Section 1114 penalty is $10 for every item listed on the DE 6.
If a reporting error was made on a previous DE 6, a Tax and
Wage Adjustment Form (DE 678) was used to file the corrected
information.
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CHAPTER 2 REPORT DELINQUENCIES
ANNUAL Between January 1, 1995, and December 31, 2010, employers
RECONCILIATION were required to file an Annual Reconciliation Statement (DE 7)
STATEMENT annually to reconcile tax deposit payments submitted during the
(DE 7) year for withholdings of DI and PIT, employer payments of UI
and ETT, and to reconcile the total subject wages reported
during the year on the DE 6. The DE 7 was due on the first
business day of the subsequent year and was delinquent if not
postmarked on or before January 31 of that year. If January 31
fell on a Saturday or Sunday, the employer had until the next
business day to file the DE 7 timely.
A final DE 7 was required to be filed within 10 working days
after an employing entity closes a business.
If an employer failed to file a completed DE 7, an estimated
assessment was issued for each active quarter on the
employer’s account. In addition, a Section 1117 of the CUIC
penalty was charged. The Section 1117 penalty is $1,000 or
five percent of contributions, whichever is less. This penalty is
after a demand had been sent and a DE 7 was not received
within 45 days. When a DE 7 was received after or an
assessment was issued, the penalty may have been reduced to
five percent of total contributions due.
If a reporting error was made on a previous DE 7, a DE 678
was used to file the corrected information.
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CHAPTER 2 REPORT DELINQUENCIES
QUARTERLY Prior to January 1, 1995, employers were required to file a
CONTRIBUTION Quarterly Contribution Return (DE 3) (similar to a DE 9) and a
RETURN (DE 3) Report of Wages (DE 3B) (similar to a DE 9C). The DE 3 was
used by employers to report UI, ETT, and DI taxable wages
and the amount of PIT withheld. All amounts due were
submitted with the DE 3. The DE 3B was used to report each
employee’s name, Social Security number, and quarterly
wages.
The DE 3/DE 3B had the same due and delinquency dates as
the DE 9/DE 9C and the end of quarter DE 88 payment.
Payment must accompany the DE 3, including all funds that
were payable by the employer, as well as trust fund
withholdings.
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CHAPTER 3 COLLECTION MANAGEMENT
COLLECTION Collection management is defined as a series of actions taken
MANAGEMENT to ensure that the interests of the people of California are fully
protected. Collection management incorporates the successful
integration of an automated collection system with individual
case assignment for intensive collection actions. To protect the
interest of the state, criteria have been established for how the
collection inventory and cases are to be worked in both the
automated centralized environment and for individual case
assignment.
Adjustments may be made to case inventories:
• To equalize workloads.
• To allow for improvements in customer service to
employers, taxpayers, claimants, other members of the
public, and business communities with whom we serve.
Collection management includes the following:
• Applying a progressive system of collection actions and tools
with involuntary actions taken only when all other voluntary
actions are no longer effective.
• Providing accurate information and support to our customers.
• Evaluating and acting upon customer concerns or requests
in an objective, impartial, and timely manner.
• Conducting Section 1735 of the California Unemployment
Insurance Code (CUIC) investigations while pursuing
collection of corporate liability.
• Identifying aged accounts to be worked and resolved.
• Utilizing staff and technological resources effectively.
• Resolving all accounts in an expedient manner.
• Transferring accounts when appropriate.
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CHAPTER 3 COLLECTION MANAGEMENT
COLLECTION Questions concerning collection management should be
MANAGEMENT directed initially to a manager for a discussion of specific local
(cont’d.) issues and how they impact the overall collection management
process. Program management team members are also
available to discuss collection management issues.
TIME FRAMES To ensure timely collection resolution, specific tasks have been
identified for effective collection management. In reviewing
assignments, staff and managers will discuss cases or workloads
that pose a particular challenge or offer a unique opportunity for
professional growth and added program knowledge. Assignments
that have not been worked within the time frames will be
identified. A partnership between staff and management will then
ensure that these assignments are fully worked in the most
efficient and effective manner possible.
REIMBURSABLE In lieu of the contributions required by employers, an entity, as
ACCOUNTS defined in Section 803(a) ofthe CUIC, may elect to reimburse
the Unemployment Insurance Fund the cost of benefits paid to
claimants. Reimbursable accounts generally are public entities
hospitals, religious, charitable, educational, and nonprofit
organizations. An application is required to be filed by the entity
and approved by the EDD. Section 803(h) of the CUIC
authorizes the EDD to terminate the election of any entity that is
delinquent in the payment of advances or reimbursements
required by the Director.
Notices of State Tax Lien (DE 2181) may not be filed on
governmental agencies. If an entity is delinquent, the entity may
be contacted. A meeting with the entity must be requested if
payment in full is not made. In addition, an investigation to
determine the responsible person for the entity should
commence. The area program manager must pre-approve ALL
compliance actions.
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CHAPTER 4 CONTACT EMPLOYER
CONTACT Professional conduct and demeanor are important when
EMPLOYER communicating with customers. The first contact with an
employer gives them a lasting impression of the Employment
Development Department (EDD). Employers expect and deserve
quality customer service from every EDD employee. This
expectation is consistent with the EDD Vision Statement. The
first contact with an employer is an excellent opportunity to gain
the employer's attention, cooperation, and full compliance.
Understanding and learning how to motivate people are
important compliance enforcement tools. Developing these skills
requires an insight of the business methods and characteristics
of the individuals that make up the diversified employer
community. Generally, you will encounter four basic types of
employers:
• Willing to pay/able to pay
• Willing to pay/unable to pay
• Unwilling to pay/able to pay
• Unwilling to pay/unable to pay
Staff should develop, with training and experience, their own
technique for motivating an employer to pay voluntarily.
Experience leads to expertise.
Staff should also develop an approach to effectively deal with
each of the four types of employers that may be encountered in
collection activities. Knowing when and how to respond or initiate
necessary action is a prerequisite to becoming an effective
compliance person.
Contact with employers is made by letter, phone, office meeting,
or field calls to the employer's place of business. The degree of
urgency or type of collection assignment will determine the type
of contact to initiate first.
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CHAPTER 4 CONTACT EMPLOYER
ENTITY California recognizes many types of business entities. The
VERIFICATION different entity types provide opportunities for people to raise
capital in different ways and to limit the degree of personal
liability. The six major forms of business entities are sole
proprietorship, general partnership, limited partnership, limited
liability partnership, limited liability company, and corporation.
Corporations are the most popular form of a business entity.
Entity types and their descriptions are outlined below:
Sole Proprietorship
A sole proprietorship is one individual who owns and operates
one or more businesses. The assets of the individual may be
used to satisfy the liability of the business.
General Proprietorship
Sections 16100 through 16962 of the California Corporations
Code (CCC) are known as the Uniform Partnership Act of 1994.
As provided in Section 16101(9) of the CCC, a partnership is an
association of two or more persons to carry on as co-owners of a
business for profit.
The partners jointly own the firm and share in its profits or losses.
Section 16306 of the CCC states that all partners are liable
jointly and severally for all obligations of the partnership. The
assets of the individual partners, as well as the partnership
assets, may be used to satisfy the liability.
A partnership agreement may be formal or informal, written or
oral. The intention to form a partnership may be determined from
the acts, conduct, and statements of the parties. General
partnerships originate in common law and do not require formal
authorization.
Statement ofpartnership papers are filed with the county clerk or
recorder’s office and are indexed by the name of the partnership.
All partners’ names and addresses are listed on the statements.
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CHAPTER 4 CONTACT EMPLOYER
ENTITY Dissolution of Partnership
VERIFICATION
(cont’d.) Whenever a partnership is dissolved, a notice of the dissolution
shall be published at least once in a newspaper of general
circulation in the place where the business was operated. This
notice is filed with the county clerk within thirty days after the
publication.
Limited Partnership
Sections 15900 through 15912.07 of the CCC is known as the
Uniform Limited Partnership Act of 2008. A limited partnership is a
partnership formed by two or more persons, having members as
one or more general partners and one or more limited partners.
Limited partners are not liable for any obligation of a limited
partnership unless named as a general partner. The assets of the
limited partnership and all general partners are jointly and
severally liable for the full partnership debt.
The limited partnership is not dissolved if a limited partner
withdraws, dies, or is substituted.
The words “limited partnership” or “L.P.” must appear at the end of
the firm name. Limited partners’ names are not shown.
The Secretary of State (SOS) indexes certificates of limited
partnership by the name of the limited partnership. The certificates
will list the name and address of the general and limited partners,
as well as the agent for service of process.
Foreign Limited Partnership
A foreign limited partnership is a limited partnership formed under
the laws of any state other than this state or under the laws of a
foreign country. A certificate of registration should be on file with
the SOS. The same information as described above for a limited
partnership will be shown, as well as the location where the
partnership was formed.
Dissolution of Limited Partnership
A certificate of dissolution must be filed with the SOS. It will include
the name of the limited partnership, file number, and the date of
dissolution.
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CHAPTER 4 CONTACT EMPLOYER
ENTITY Limited Liability Company
VERIFICATION
(cont’d.) Sections 17701.01 through 17701.17 of the CCC are known as the
California Revised Uniform Limited Liability Company Act. Limited
liability companies (LLC) are a cross between a limited partnership
and a corporation. The LLC s must have one or more m embers.
The owners are designated as members instead of shareholders
or partners.
In order to form an LLC, articles of organization must be filed with
the SOS and a SOS file number will be issued. The LLC Unit
within the SOS will provide copies of the documents and the date
of filing.
The LLCs are treated as corporations for collection purposes.
Members must be assessed under Section 1735 of the California
Unemployment Insurance Code (CUIC) when individual
responsibility is identified.
Limited Liability Partnership
Sections 16951 through 16962 of the CCC permit licensed
persons to render professional limited liability partnership services.
Limited liability partnerships (LLP) are limited in those businesses
dedicated to the practice of public accountancy, law, architecture,
engineering, or land surveying. The two types of LLPs are
Registered Limited Liability Partnerships (RLLP) and foreign LLPs.
The assets of the LLP and a partner assessed under a
Section 1735 of the CUIC assessed partner are responsible for the
liabilities.
A RLLP is formed when a partnership, other than a limited
partnership, files a registration with the SOS. It must be submitted
by one or more of the partners authorized to execute a registration.
A foreign LLP must be a registered LLP pursuant to an agreement
governed by the laws of the foreign jurisdiction and denominated
or registered as an LLP under the laws of that jurisdiction.
The name of the RLLP shall contain the words “Registered Limited
Liability Partnership” or “Limited Liability Partnership” or one of the
abbreviations “L.L.P.,” “LLP,” “R.L.L.P.,” or “RLLP.”
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CHAPTER 4 CONTACT EMPLOYER
ENTITY LLPs possess some qualities of a partnership as well as some
VERIFICATION qualities of a corporation. The partners are required to be licensed
(cont’d.) under the provisions of the Business and Professions Code to
practice law, professional accountancy, or architecture, or be
related to a RLLP to provide facilities to or services related or
complementary to the professional LLP.
Verification or copies of the registration documents for both entities
are located in the Limited Liability Unit at the SOS.
The LLP members must be assessed under Section 1735 of the
CUIC to be held individually responsible for LLP tax liabilities.
Corporations
Sections 100 through 2319 of the CCC are known as the General
Corporation Law. A corporation is an entity, separate and distinct
from its members. The entity holds title to the assets. A corporation
may be either domestic or foreign.
A domestic corporation operates and is incorporated in the state in
which it is chartered. Section 200 of the CCC provides that
applicants must file articles of incorporation with the SOS. A
corporate account number is issued by the SOS.
A foreign corporation operates in California and is incorporated in
another state. Section 2105 of the CCC sets forth the filing
requirements for foreign corporations. The SOS will issue a
certificate of qualification for a foreign corporation.
Private Corporation
The term “private corporation” refers to a corporation founded by
and composed of private individuals for private purposes.
Public Corporation
The term “public corporation” refers to a corporation created by the
State for political purposes and to act as an agency in the
administration of civil government.
Nonprofit Corporation
The term “nonprofit corporation” applies to any corporation formed
for other than profit reasons. A federal exemption under United
States (U.S.) Code, Title 26 (Internal Revenue Code),
Section 501(c)(3) must be obtained. Examples include religious,
charitable, and education institutions.
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CHAPTER 4 CONTACT EMPLOYER
ENTITY De Jure and De Facto Corporations:
VERIFICATION
(cont’d.) These issues arise only in the formation stage of the corporation.
A de jure corporation is one that is organized in full compliance
with all of the state requirements.
A de facto corporation operates as if it were a corporation although
it has not completed the legal steps to become incorporated (has
not filed its articles of incorporation, for example) or has been
dissolved or suspended but continues to function. The court
temporarily treats the corporation as if it were legal in order to avoid
unfairness to people who thought the corporation was legal.
Termination
The corporate existence may be terminated by:
• Voluntary dissolution
• Involuntary dissolution
• Proceeding by the state
Suspension
Suspension of a corporation for nonpayment of franchise taxes
under Section 23301 of the Revenue and Taxation Code does not
terminate the corporate existence. The corporate entity remains
the employing unit and legal entity that incurs liability under the
CUIC by reason of any employment of persons and payment of
wages during the suspension period.
OTHER ENTITY Association
TYPES
Section 21300 of the CCC defines an association as including any
lodge, order, beneficial association, fraternal or beneficial society
or association, historical, military, or veterans organization, labor
union, foundation, or federation, or any other society organization,
or association, or degree, branch, subordinate lodge, or auxiliary
thereof. The association and a Section 1735 of the CUIC assessed
responsible person are responsible for the liabilities.
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CHAPTER 4 CONTACT EMPLOYER
OTHER ENTITY Estate
TYPES (cont’d.)
In case of death of a person, an executor of the estate may be
named in a will. If no executor is named, or if no will exists, courts
may appoint an administrator of the estate. Like trustees,
executors and administrators are not usually considered
employees of the estate, but perform services applicable under a
fiduciary capacity. A new EDD employer payroll tax account
number is not required unless employees are hired. The estate is
the employing unit and is responsible for the liabilities.
Joint Venture
A joint venture is the undertaking of two or more persons or
entities joined to carry out a single business transaction or
operation. Its existence depends on the intent of the parties. A joint
venture has neither a predecessor nor successor and the unity of
enterprise theory does not apply. The joint venture ceases when
the specific reason for its formation is complete. The joint venture
is the employing unit and is responsible for the liabilities.
Public Agency
A public agency includes every governmental subdivision, district,
public and quasi-public corporation, public agency and public
service corporation, town, city, county, city and county, municipal
corporation, whether incorporated or not. The public agency is
responsible for liabilities.
Trust
A trust is the designation of a third party (trustee) to manage
assets for the benefit of another party. A new employing unit is
created if employment services are performed for the trust. The
trust is the employing unit and is responsible for the liabilities.
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CHAPTER 4 CONTACT EMPLOYER
FIRST PERSONAL The EDD’s policy is to make timely contact with the taxpayer
CONTACT after case assignment. In general, 15 calendar days is
considered to be a timely initial contact but may be adjusted, not
to exceed 90 days, due to workload volume. Adjustment of
contact time frames requires management approval. A
representative’s primary goal is to make the first contact within
established time frames and to gain full compliance with an early
resolution. Use of the phone is generally the most cost-effective
way of speaking with the taxpayer.
Prior to contact:
• Analyze the account and the liability.
• Prepare toexplain the liability.
• Have questions ready to update missing account information.
• Anticipate questions and have the answers.
• Be familiar with:
o The EDD’s policy on the Rosenthal Fair Debt Collection
Practices Act, Sections 1788 through 1788.33 of the Civil
Code.
o Confidentiality policies.
o Employers’ Bill of Rights (DE 195).
o The CUIC and other California laws.
• Know the laws related to payment agreements and collection
remedies.
• Determine the owner or authorized person to be contacted.
Making contact:
• Make sure you are speaking to the owner or authorized
person.
• Explain the purpose of your call. Make a demand for
immediate payment in full of outstanding liabilities including
filing and payment of delinquent returns.
• Communicate clearly and do not use acronyms.
• Explain the advantages of full compliance if the taxpayer
cannot provide definite compliance dates.
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CHAPTER 4 CONTACT EMPLOYER
IDENTIFY THE It is critical to speak to the person responsible for the payment of
TAXPAYER the liability. Confirm that the person who is contacted is the owner,
partner, responsible person, or authorized agent. This may include
someone having a power of attorney. An individual responsible for
payment may not include the person who prepared the tax return,
unless that tax preparer also has check writing authority. It is the
responsibility of the employer to contact their accountant or
bookkeeper for return adjustment information and to provide any
power of attorney information.
PAYMENT Analyzing the taxpayer’s payment history will assist in locating
HISTORY unapplied payments or payments that have resulted in a refund.
PHONE Good communication requires the following skills:
CONTACTS
SKILLS DESCRIPTION
Speak clearly Be precise and enunciate clearly.
Keep it simple Communicate so the other person understands.
Avoid the use of legal or technical terms unless
it is absolutely necessary. Never use jargon or
EDD acronyms that the customer may not
understand.
Be objective Do not allow personal thoughts or opinions to
interfere with understanding the employer's
financial problems.
Do not presume Wait until there is sufficient information before
to know making a decision and giving a response.
Restate the conversation to ensure
understanding.
Stay focused Listen and understand what the taxpayer is
trying to explain.
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CHAPTER 4 CONTACT EMPLOYE R
PHONE
SKILLS DESCRIPTION
CONTACTS
(cont’d.)
Balance the Effective communication requires one speaker
communication and one listener at a time. Each should have
ample time to speak or respond without
interruption.
Never argue Keep the mood pleasant and professional.
Summarize the Confirm agreements that have been reached
outcome of the and the dates and amounts that are due. Set
call up any follow-up dates if documents are to be
provided.
Ask the right Knowing when and how to ask specific
questions questions is necessary.
Use option Consider all available alternatives to move the
thinking case forward to a rapid resolution.
A positive attitude contributes noticeably to performance,
productivity, and good customer service. It is a skill that is
developed individually.
Learn to use the tools and resources available and consider all
options available.
OFFICE Things to do before the taxpayer arrives:
MEETING
• Schedule interview room.
• Complete all the steps in reviewing and analyzing the
account.
• Review all of the documents that were previously submitted.
• Prepare a list of questions.
• Determine additional information needed to resolve report
delinquencies.
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CHAPTER 4 CONTACT EMPLOYE R
PREPARATION Be prepared to discuss the problems with the taxpayer at the
FOR THE FIELD place or location of the field call.
CALL
Items to take:
• Proper identification and business cards.
• Contribution Receipt Book (DE 10).
• Extra copies of forms the taxpayer may need.
• GPS or a current map.
• Laptop.
Things to do prior to leaving for the field call:
• Prepare travel itinerary in accordance with your office
practices and policies.
• Sign out per your office practices and policies.
• Conduct a safety check of the vehicle to be used. If using a
state vehicle, make sure the travel log, and accident report
forms are in the glove compartment.
• Comply with additional office procedures and seek advice
related tothe business location.
RETURNING TO Upon returning to the office, discuss any case issues or
THE OFFICE problems with the manager.
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CHAPTER 4 CONTACT EMPLOYER
COLLECTION Some taxpayers will respond to:
LETTERS
• Phone calls
• Field visits
• Letters
Each collection case requires individual treatment. Knowing
when to use each type of contact is a skill that is acquired
through experience.
The EDD has several form letters that may be used when
corresponding with a taxpayer. The appropriate letter should be
used. Every letter will contain the name of the representative or
other authorized person familiar with the case and the office
address and phone number.
Collection letters should be mailed as follows:
• Ordinary mail: Use in most cases.
• Certified mail: Use if proof of delivery is necessary.
• Certified mail with return receipt: Use if it is suspected that
the taxpayer has moved and a receipt is needed to show
the address of delivery.
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CHAPTER 5 ESCROWS
ESCROW Escrow is a contractual arrangement between parties, whereby
an independent, trusted third party receives and disburses money
or documents for the parties, with the timing of such disbursement
dependent on the fulfillment of conditions set by the parties.
Escrows are best known in the context of real estate, but are also
used for other financial transactions. The escrow process
guarantees that the property being purchased is free and clear of
encumbrances, including Employment Development Department
(EDD) liability.
The two most common types of escrows for the EDD collections
are the sale or refinance of real property and the sale of a
business. The escrow company will contact the EDD to determine
the amount due and withhold money from the proceeds of the
sale to remit to the EDD.
The escrow holder is required to withhold sufficient money from
the proceeds of the escrow to cover any amounts due to the EDD.
Failure to withhold may make the escrow holder liable for the full
amount of any Notice of State Tax Lien (DE 2181).
In addition to escrows, there are other situations where the EDD
may be contacted for a demand for payoff when there is a sale or
transfer of assets, such as:
• Liquor license
• Personal property
• Real property
• Surplus funds
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CHAPTER 5 ESCROWS
ESCROW A DE 2181 is recorded in the county where the property is located
(cont’d.) and/or filed with the Secretary of State (SOS).
This chapter covers the different types of demands for payment
that are requested from:
• Attorneys
• Banks
• County tax collectors
• Escrow companies
• IRS
• Business owners
• Private parties
• Reconveyance companies
• Title companies
• Trustees in bankruptcy
• Trustee services
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CHAPTER 5 ESCROWS
RESPONSIBILITY The responsibility of issuing a demand and clearance has been
FOR DEMAND divided as follows:
AND CLEARANCE
TYPE OF SALE OR
RESPONSIBLE AREA
TRANSFER
Business with a The Area Audit Office (AAO) issues escrow
liquor license clearances on the sale of businesses for
employers within their jurisdiction.
Special Procedures Section, Offset Group
(SPS, OG), processes the liquor license
demand/transfer if there is a hold on the
liquor license.
Business without a Audit issue escrow clearances on the sale
liquor license of businesses for employers within their
jurisdiction.
Excess funds SPS, OG
Home equity loans Special Procedures Section, Lien Group
(SPS, LG) - Full pay
Special Procedures Section, Special
Procedures Group (SPG, SPG) - Partial
pay
Surplus funds SPS, OG -Full pay
SPS, SPG -Not paid in full
Liquor license SPS, OG
Mortgage refinance SPS, LG
Personal property SPS, LG -Full pay
SPS, SPG -Partial pay
Real property SPS, LG
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CHAPTER 5 ESCROWS
RESPONSIBILITY Field personnel who have case assignments may be requested to
FOR DEMAND assist in the escrow process.
AND CLEARANCE
(cont’d.)
SALE OF A Section 1731 of the California Unemployment Insurance Code
BUSINESS (CUIC) provides that any person or entity that acquires an
employer’s business or substantially all of the assets shall
withhold in trust sufficient money or other property to cover the
employer's liability. The withholding shall continue until the
employer produces a certificate from the EDD stating that no
amounts are due.
Section 1732 of the CUIC provides that upon the request of the
seller or buyer, the EDD shall issue a statement showing the
amount due by the seller. If the EDD fails to issue the statement
within 30 days, it is equivalent to stating that there is no amount
due. However, if the EDD issues the statement, the buyer shall
withhold and pay to the EDD the amount due, not to exceed the
purchase price.
If the EDD issues a certificate stating that no amounts are due or
fails to issue an amount due statement within the 30-day period,
the seller is still responsible for any amount then or thereafter
determined to be due. However, the buyer is released from any
further liability on the seller’s account.
Section 1733 of the CUIC provides that any buyer that fails to
withhold money or other property from the sale or fails to pay the
amount withheld shall be personally liable for the employer’s
amount due up to but not exceeding the purchase price.
The EDD uses a Certificate of Release of Buyer (DE 2220) to
notify the buyer that they are released from any further liability on
the seller’s account.
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CHAPTER 5 ESCROWS
SALE OF A Escrow Notification
BUSINESS
(cont’d.) When staff receives written notification of a pending business
escrow, a copy of the notification should immediately be faxed to
the appropriate responsible area. Staff will inquire if sufficient
funds are available to satisfy the EDD liability and, if so, may not
initiate further collection activity.
Demand and Clearance
The AAO is responsible for issuing escrow clearances on the sale
of businesses. Escrow clearances are required when a business
is either partially sold or sold in its entirety. When there i s a partial
sale of a business, the demand for delinquent taxes will include
the total tax liability due from the seller.
The AAO will contact the assigned staff immediately upon receipt
of an escrow clearance demand. The assigned staff may be
asked for assistance on the account. The responsibility for the
issuance of the DE 2220 remains with the AAO.
Statement of Amount Due
The AAO shall issue a Requirements for Certificate of Release of
Buyer Statement of Amounts Due Under Section 1732 of the
California Unemployment Insurance Code (DE 4874) showing the
amount of any contributions, interest, and penalties claimed to be
due. The DE 4874 should include all liabilities due as well as
estimated assessments, final or non-final. Estimated assessments
should be issued for any missing returns, including periods not yet
delinquent. The DE 4874 is mailed to the escrow holder.
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CHAPTER 5 ESCROWS
SALE OF A Payments
BUSINESS
(cont’d.) The payment of any amount demanded in the DE 4874 shall be
submitted to the AAO as directed.
The amount due must be paid in the form of cash, cashier’s
check, money order, or escrow check. Checks written on the
seller’s checking account will delay the escrow clearance until the
check has cleared the account.
If any other enforced compliance is in effect, that action must be
terminated or modified after the funds are received. The AAO will
notify the assigned staff that funds have been received.
If sufficient funds are not available from the escrow process,
collections should continue against the seller.
Certificate of Release of Buyer
A request for clearance on behalf of a buyer is granted using a
DE 2220 when:
• The seller is registered and has
o No open delinquency case.
o No outstanding liabilities.
o No outstanding form delinquencies.
• The seller is not registered and
o The business has no employees.
o The business is a type that would not require employees.
• The seller is disposing of a portion of the business and
o A Notice of State Tax Lien (DE 2181) secures the full
amount of the EDD liability, and
o The remaining portion of property is sufficient to secure the
EDD liability.
• The seller is not registered but
o The business is a type that would require employees , then
o The AAO will prepare an estimated amount due, and
o Send a demand to the escrow company using form
DE 4874.
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CHAPTER 5 ESCROWS
SALE OF A Additional Requirements
BUSINESS
(cont’d.) When the seller’s account has delinquent returns or missing
payments, the buyer is notified that additional conditions must be
met. A DE 4874, with instructions to withhold an amount equal to
the known delinquent taxes plus any estimated amounts, is sent
to the escrow holder with copies to each party. Additional
conditions may include:
• Missing reports:
o Payroll Tax Deposit (DE 88).
o Quarterly Contribution Return and Report of Wages
(DE 9).
o Quarterly Contribution Return and Report of Wages-
Continuation (DE 9C).
• Liability is due:
o A Notice of State Tax Lien covers all unpaid amounts.
o Liabilities are due that have not had a Notice of State Tax
Lien filed.
• A final return is due:
Final returns must be filed within 10 days of closure of the
business.
It is important to remember that the release of a buyer does not
release the seller if any liability is identified in the future.
File Retention
All escrow information will be retained by the AAOs for one year.
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CHAPTER 5 ESCROWS
EXCESS FUNDS The EDD may be notified of excess funds from foreclosure
proceedings upon the real property of a taxpayer. Any entity
having a legal claim filed against the foreclosed property may file
a claim after the property has been sold. If funds remain over and
above the claim of the foreclosure, those having junior liens will
be paid from the excess funds according to their recording priority.
The SPS, OG receives a copy of all notices of default and all
notices of sale on properties having a Notice of State Tax Lien
recorded. Claim information is provided and completed by
SPS, OG.
HOME EQUITY When a taxpayer applies for a home equity loan requesting funds
LOANS from a financial institution based upon real property owned, the
request/demand is processed as outlined in the Real Property
section of this chapter.
SURPLUS FUNDS The IRS will seize and sell assets when their tax liens have not
been satisfied.
If there are surplus funds from the sale, the EDD may file a
demand for these funds. The SPS, OG prepares and monitors all
IRS surplus demands.
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CHAPTER 5 ESCROWS
LIQUOR LICENSE When a business being sold has a liquor license, the following
actions will be performed:
• The SPS, OG will only process the liquor license
demand/transfer.
• The SPS, OG will contact the assigned staff to verify any
outstanding delinquencies and to confirm the amount to be
included in the demand.
• The AAOs will complete the escrow clearance process and
issue a DE 4874 for any outstanding delinquencies.
• When the AAO learns of a sale that involves both a business
and its liquor license, it determines the status of the liquor
license:
o If the liquor license is clear, the AAO will complete the
buyer release process.
o If the liquor license has a hold on it, the AAO will notify
SPS, OG.
MORTGAGE Taxpayers refinancing a mortgage on real property will need a
REFINANCE clear title. When a Notice of State Tax Lien has been recorded,
the lending institution will open an escrow and request a payoff
demand of the Notice of State Tax Lien or a subordination of the
Notice of State Tax Lien.
When assigned staff is made aware of a taxpayer’s refinance
action, advise the escrow holder to fax a demand request to
SPS, LG.
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CHAPTER 5 ESCROWS
PERSONAL Personal property is described as any property that is not
PROPERTY classified as real property. Usually, the transferring of personal
property is not handled through an escrow; however, the filing of a
Notice of State Tax Lien with the SOS will provide notice to the
buyer or a lender of delinquent tax liabilities.
When a Notice of State Tax Lien has been filed with the SOS, the
escrow will be processed by SPS, LG.
Personal property includes, but is not limited to:
• Aircraft
• Automobiles
• Boats
• Heavy equipment
• Mobile homes
• Office equipment
• Recreational vehicles
• Stock on hand
• Tangible assets
• Trucks
• Vessels
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CHAPTER 5 ESCROW S
REAL PROPERTY A title search will provide notice to an escrow holder or lender of a
Notice of State Tax Lien encumbering real property. All Notices of
State Tax Lien must be paid and released before title to the
encumbered property is cleared.
When the escrow holder or lender is processing an escrow with
respect to the encumbered property, they will send the EDD a
demand for a payoff amount or the release of the recorded liens.
In response to the request, SPS, LG will prepare either a demand
for the liability covered by the Notices of State Tax Lien, or a
status letter advising that the Notices of State Tax Lien have been
released. The 30-day limitation described in Section 1732 of the
CUIC does not apply to the sale of real property.
The demand request must be in writing and sent to:
Employment Development Department
Lien Group, MIC 92G
PO Box 826880
Sacramento, CA 94230-6880
Or
Fax: 1-916-464-2711
Correspondence regarding a demand related to real property and
covered by a Notice of State Tax Lien must be directed to
SPS, LG.
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
INVOLUNTARY Involuntary collection action may be initiated immediately if any
COLLECTION of the following situations occur:
DETERMINATION
• A taxpayer fails to:
o Respond to Employment Development Department (EDD)
notices or correspondence after being contacted by an
EDD representative.
o Respond to phone calls.
o Provide requested information.
o Remain current on an installment agreement.
o Remain current on filing and paying quarterly requirements
(active employers).
o Make payments or payments are returned as
“non-sufficient funds” or “stop payment.”
o Negotiate an acceptable method of payment.
o Appear for an interview.
• A taxpayer is:
o In the process of liquidation of assets.
o Moving out of the state/country.
o Otherwise uncooperative or evasive regarding the
business entity.
• If:
o Bankruptcy appears imminent.
o A jeopardy assessment has been issued.
o It is necessary to protect the EDD’s interest.
o The taxpayer has a history of non-compliance.
o Assets are identified that were not disclosed by the
taxpayer.
o Statute of limitations is nearing expiration.
Care must be taken when deciding on the appropriate involuntary
collection action. Staff must be able to distinguish between liability
that is due or delinquent.
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
TYPE OF Involuntary actions can be taken using the following methods:
INVOLUNTARY
ACTION • Earnings Withholding Order for Taxes (EWOT), Jeopardy
Withholding Order for Taxes (JWOT)
• Interagency offsets
• Notice of Levy (NOL)
• Warrants
IF IDENTIFIED ASSET IS METHOD OF ATTACHMENT
Accounts receivable NOL –effective for one year
Aircraft Warrant
Assets requiring an Warrant
execution sale
Assignee for benefit NOL on the assignee to secure
of creditors dividends that may be payable to
the taxpayer, if the assignment has
been recently terminated and there
are funds to be returned.
Automobile Warrant
Bank account NOL
Boat/trailer Warrant
Bonds:
1. Surety 1. Claims filed by Special
Procedures Section,
Special Procedures Group
(SPS, SPG)
2. United States 2. Not attachable
(U.S.) Savings
3. Security deposits 3. Offset
by other agencies
Campaign funds NOL
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
TYPE OF
IF IDENTIFIED ASSET IS METHOD OF ATTACHMENT
INVOLUNTARY
ACTION
Cash in possession of Warrant
(cont’d.)
taxpayer
Cash in possession of NOL
third party
Cemetery plot, land held Warrant
for sale
Cemetery plot, taxpayer’s Not attachable
family/spouse
Certificate of deposit – NOL
matured
Church –bank account NOL
Commissions plus salary EWOT/JWOT
Commissions straight– NOL ifindividual is treated as
an independent contractor
EWOT if individual is treated as
an employee
Community property – Issue an NOL or Warrant
other than wages depending on type of asset
When enforcement is being taken
against the community property of
a spouse who is not a taxpayer or
is not personally responsible for
the liability, the NOL or Warrant
must explain this fact.
Consigned property – Warrant
taxpayer’s
Consignment sales – NOL
proceeds
Contracts payable to NOL
taxpayer
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
TYPE OF
IF IDENTIFIED ASSET IS METHOD OF ATTACHMENT
INVOLUNTARY
ACTION
Denti-Cal payments NOL
(cont’d.)
Disability Insurance (DI) Not attachable for taxes – can be
benefits offset for a benefit overpayment
Equipment: Warrant
• Sale of Equipment
1. No escrow 1. Warrant or NOL
2. With escrow 2. Issue a demand to clear the
Notice of State Tax Lien
Escrow funds:
1. Amounts covered by 1. Issue a demand to clear
a Notice of State the Notice of State Tax
Tax Lien Lien
2. Amounts not 2. NOL
covered by a Notice
of State Tax Lien
Financial institution
NOL
accounts:
• Banks
• Credit Unions
• Savings and Loans
Funds held by Trustees Not attachable, unless they
in bankruptcy are funds to be returned to
the taxpayer, then use NOL
Furniture and fixtures – Warrant
commercial
Furniture and fixtures – Not attachable
personal and residence
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
TYPE OF
IF IDENTIFIED ASSET IS METHOD OF ATTACHMENT
INVOLUNTARY
ACTION
(cont’d.) Horse racing purse NOL
Individual Retirement Not attachable
Account (IRA)
Inheritance Warrant
Insurance dividends NOL
Insurance proceeds – Warrant ifproceeds are
business: for personal property
damage
• Errors and Omissions
• Malpractice Insurance
• Fire Insurance
• Interruption of Business
• Personal Injury
Interest NOL
Lien on cause Refer toSPS, SPG
Life insurance policy – Warrant
loan cash value
Liquor – unopened Warrant
Lottery –proceeds/winnings Offset
Machinery Warrant
Medi-Cal payments Offset
Mobile home – dealer sales Warrant
Motor vehicles – Warrant
on-road/off-road
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
TYPE OF
IF IDENTIFIED ASSET IS METHOD OF ATTACHMENT
INVOLUNTARY
ACTION
Partnership property Warrant – Partnership property is
(cont’d.)
not subject to levy for the
individual debt of one of the
partners incurred either prior to
the formation or after the
dissolution of a partnership.
Payments for services Offset
rendered to state agencies
Perishable items Warrant –Requires special
consideration for storage, board,
care and maintenance, or
immediate sale.
Personal property in Warrant
warehouse
Personal property • Warrant prior to the sale.
being sold
• NOL tothe buyer.
Progress payments • Warrant –effective for
(continuing periodic two years.
payments taxpayer)to
• NOL –effective for one year.
Promissory note Warrant
Property incustody of Property that is no longer required
the law for security and is to be returned
to the taxpayer is subject to
attachment (i.e., bail posted for a
charge that has been cleared,
property used as evidence, etc.).
See property types in this table for
the method of attachment.
Prosthetic and orthopedic Not attachable
devices – for taxpayer’s
personal use
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
TYPE OF
IF IDENTIFIED ASSET IS METHOD OF ATTACHMENT
INVOLUNTARY
ACTION
Real property: Warrant
(cont’d.)
• Land
• Taxpayer’s personal
residence, including a
mobile home
• Rental
Recreational equipment Warrant
Refunds from other state Offset
agencies
Rent NOL to each tenant
Retirement funds Not attachable
Rolling stock Warrant
Safe deposit box Warrant with drilling instructions.
Sales tax deposit Not attachable unless being
refunded, then offset prior to
refund to the taxpayer.
Security deposits Offset
Stock NOL
Stock in trade Warrant
Surplus funds from third- NOL
party sale
Tangible personal property Warrant
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
TYPE OF
IF IDENTIFIED ASSET IS METHOD OF ATTACHMENT
INVOLUNTARY
ACTION
Trailer(s): Warrant
(cont’d.)
• Camping
• Freight
• Motor home
• Utility
• Vehicle transport
Trusts – family NOL or Warrant
Trusts – held for a Not attachable:
third party
• Federal regulations prohibit
the attachment of payroll
withholding.
• Special bond deposits for
other taxing agencies.
Warrant:
• Undisclosed beneficiary of a
trust account.
Trusts – inmate Not attachable
Trusts – living Refer to a Special Procedures
Advisor.
Trusts – spendthrift Not attachable
Unemployment Not attachable for taxes – can
Insurance (UI) benefits be offset for benefit
overpayments.
Vacation trust funds NOL – should be served at the
time and place designated by
the union.
Vehicles Warrant
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CHAPTER 6 INVOLUNTARY COLLECTION DETERMINATION
TYPE OF
IF IDENTIFIED ASSET IS METHOD OF ATTACHMENT
INVOLUNTARY
ACTION
(cont’d.) Wages/Salaries: EWOT
• Private businesses If the taxpayer is in the military,
the base commander may also
• Private businesses
be contacted for assistance in
operating on
collection.
military bases
• Military businesses
with either private or
federal employees
• Federal employees
• Post office employees
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CHAPTER 7 STATE TAX LIEN/NOTICE OF STATE TAX LIEN
STATE TAX A state tax lien is a form of security interest imposed by law upon
LIEN/NOTICE OF property to secure the payment of taxes. A state tax lien may be
STATE TAX LIEN imposed for failure to pay required taxes. The filing of a Notice of
(DE 2181) State Tax Lien is a public notice that the state (or one of its
departments) has a claim against all property owned by the
taxpayer. The Notice of State Tax Lien also establishes the
Employment Development Department’s (EDD) priority when
there are competing liens.
The authority for all state tax liens derives from Section 7170 of
the Government Code (GC). Per Section 1703 of the California
Unemployment Insurance Code (CUIC), a state tax lien is created
on the date of the first system generated billing (discovery
statement) to the taxpayer of the amount due, the finality date of
an assessment, or the date of the written notice of rescission
provided under Section 1875 of the CUIC for an Offer in
Compromise (OIC). Each of these dates is known as the lien
arose date. This means the lien is perfected and enforceable
without a recorded Notice of State Tax Lien.
Section 7171(a) of the GC allows the EDD to record a Notice of
State Tax Lien with the county recorder in the same county where
real property is located. Notices of State Tax Lien may be
recorded in more than one county. Sections 7171(b) and 7220 of
the GC allows the EDD to file a Notice of State Tax Lien with the
Secretary of State (SOS) on personal property. The EDD must
record and/or file a Notice of State Tax Lien no later than 10 years
from the lien arose date.
For a better understanding of this procedure, the following terms
have specific meanings:
TERM DESCRIPTION
These three terms are interchangeable
and result from any of the following:
Create date • Date of discovery statement for an
amount due.
Choate date • Finality date of an assessment.
Lien arose date • Date of an OIC rescission.
Filed Notice ofState Tax Lien is filed with the
SOS.
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CHAPTER 7 STATE TAX LIEN/NOTICE OF STAT E TAX LIEN
STATE TAX
TERM DESCRIPTION
LIEN/NOTICE OF
STATE TAX LIEN
Lien An encumbrance upon an asset placed by
(DE 2181)
creditors.
(cont’d.)
Mother lien Original Notice of State Tax Lien.
Notice Stateof Public Notice of a State Tax Lien.
Tax Lien
Recorded Notice ofState Tax Lien recorded with the
county recorder.
State tax lien Statutory lien authorized by Section 1703 of
the CUIC.
Silent lien Statutory lien for which no paper has been
issued.
Statutory lien Authorized by Section 1703 of the CUIC, a
perfected and enforceable state tax lien. Also
known as a silent lien.
EMPLOYER Employers are notified on cycled billing statements, such as
NOTIFICATION Notice of Amount Due (DE 6601),Statement of Account
(DE 2176), etc., of any outstanding balances on their account. If
an employer does not respond to the notifications, the outstanding
balance is then referred to collections and the employer will
receive a Collection Notice (DE 6485).
The notification on the DE 6485 reads:
We may take collection actions without further notice as provided
for in the California Unemployment Insurance Code. Actions may
include:
• Filing of State Tax Liens.
• Garnishment of your wages.
• Seizure and sale of your assets.
• Interagency intercepts.
If the employer does not respond to the DE 6485 within 45 days,
the Accounting and Compliance Enterprise System (ACES) will
automatically move the account to an evaluation stage that will
review the account for the next appropriate action.
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CHAPTER 7 STATE TAX LIEN/NOTICE OF STAT E TAX LIEN
REQUIRED Pursuant to Section 7171(c) of the GC, the Notice of State Tax
INFORMATION Lien recorded or filed shall include all of the following:
1. The name* and last known address of the taxpayer.
2. The name of the agency giving notice of the lien.
3. The amount of the unpaid tax.
4. A statement that the amount of the unpaid tax is a lien on all
real or personal property and rights to such property, including
all after-acquired property and rights to property, belonging to
the taxpayer.
5. A statement that the agency has complied with all of the
provisions of the applicable law for determining and assessing
the tax.
A Notice of State Tax Lien is not valid without the above listed
information.
*County recorders will not record a Notice of State Tax Lien with
ETC or ETAL after the liable individual’s or corporate names.
LIEN PRIORITY When sufficient funds are not available to clear all liabilities,
priority must be established to determine the recipient of the
funds.
All statutory liens are subordinate to mechanic liens (Stop Order)
as set forth in Section 3193 of the Civil Code.
The Notice of State Tax Lien recording date establishes priority
when a general creditor’s lien is against the same person or entity
as the EDD’s lien.
When priority for payment must be established between
competing state tax liens or between a state tax lien and a federal
lien, the first statutory lien that comes into existence has priority
as provided in Section 7170.5 of the GC.
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CHAPTER 7 STATE TAX LIEN/NOTICE OF STATE TAX LIEN
PURPOSE OF A A recorded or filed Notice of State Tax Lien:
STATE TAX LIEN
• Allows the EDD to obtain funds from an escrow.
• Establishes the EDD’s priority with respect to third parties.
• Extends the time for taking involuntary action.
• Provides notice to the public of the EDD’s lien and
encumbrances of real and personal property.
COUNTY LIEN Section 7174(d) of the GC authorizes a lien release fee to be
FEES added to the taxpayer’s account. The lien release fee amounts
vary by county. Section 7171(d) of the GC allows an additional fee
for Notices of State Tax Lien with an out-of-state address. Each
county bills the EDD monthly for the recordation fees. The Special
Procedures Section, Lien Group is responsible for authorizing and
approving payment.
Pursuant to Sections 27361.3 and 72 27 of the GC, the EDD is
exempt from a recording fee for the release of an erroneous
Notice of State Tax Lien.
SECRETARY OF Section 7227 of the GC requires a fee of $2 for filing a certificate
STATE FILING of release. However, there is no fee for filing a certificate of
FEES release if the Notice of State Tax Lien is erroneous.
The SOS requires that the fees are submitted with releases that
need to be filed.
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CHAPTER 7 STATE TAX LIEN/NOTICE OF STATE TAX LIEN
LIEN Under the provisions of Section 7172(c) of the GC, to prevent a
EXTENSIONS recorded or filed Notice of State Tax Lien from expiring and to
remain within the statute of limitations, a Notice of Extension of
State Tax Lien must be recorded with the county recorder or filed
with the SOS within 10 years from the recording or filing date.
The 10-year period may be crucial.
California Constitution Article 13, Section 30, provides that every
tax shall be conclusively presumed to have been paid after 30
years from the time it became a lien unless the property subject
to the lien has been sold in the manner provided by the
Legislature for the payment of the tax.
NOTICE OF STATE The EDD’s liens are prefixed with a letter depending on when the
TAX LIEN Notice of State Tax Lien was issued. The following table explains
IDENTIFICATION each letter of the EDD’s liens:
LETTER IDENTIFIES
G Automated Notices of State Tax Lien began on
January 18, 2011.
W Automated Notices of State Tax Lien issued from
June 3,1988, through January 17, 2011.
M Manual Notices of State Tax Lien began on April 3,
1972. Sections 7174(c) and (d) of the GC allows
agencies to charge the taxpayer release of lien fees
and mandates agencies to send the release of liens
to the county recorder for recordation.
P Manual Notices of State Tax Lien issued prior to
April 3, 1972. No lien fees. Release of liens were
sent directly to the taxpayer to record with the
county recorder.
K Manual Notices of State Tax Lien issued from
February 27, 1975, to September 30, 1986.
N Manual Notices of State Tax Lien issued in the early
1960s for a very short period of time.
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CHAPTER 7 STATE TAX LIEN/NOTICE OF STAT E TAX LIEN
LIEN RELEASES Section 7174(c)(1) of the GC directs the EDD to record a
Certificate of Release in the office of the County Recorder where
the Notice of State Tax Lien is recorded not later than 40 days
after the liability is satisfied.
Section 7174(e)(1) of the GC requires the EDD to file a Certificate
of Release with the SOS not later than 40 days from the date of
full satisfaction.
Section 7174(d) of the GC provides that the cost of recording the
Certificate of Release is an obligation of the taxpayer and may be
collected in any manner provided by law for the collection of the
tax. The EDD includes lien fees in the penalty column of the
Notice of State Tax Lien.
In accordance with Section 7174(f) of the GC, if payment for the
liability is made by personal or business check, the 40-day period
does not commence to run until the financial institution upon
which it was drawn has paid the check.
ERRONEOUS A Notice of State Tax Lien is considered erroneous if it is
LIENS recorded with the county recorder’s office, orfiled with the SOS
and one ofthe following conditions exist:
• An incorrect employer name or entity was used.
• The lien was recorded after the bankruptcy petition date.
• Liability was established in error.
• When an assessment is cancelled and the liability stated on
the associated Notice of State Tax Lien represents the
entire amount of the cancelled assessment.
• The employer timely petitioned assessments.
• The lien was recorded after a taxpayer is deceased.
CAUTION: A Notice of State Tax Lien may be recorded
against a decedent’s estate.
• The lien is recorded after the liability is paid in full.
DE 83 Rev. 1 (4-18)(INTERNET) Page 6 of 7
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CHAPTER 7 STATE TAX LIEN/NOTICE OF STATE TAX LIEN
LIENS THAT Examples of situations where the Notice of State Tax Lien is not
ARE NOT erroneous:
ERRONEOUS
• Payment is received after the recording date of a Notice of
State Tax Lien.
• The lien was recorded prior to dissolution of partnership.
• Part of the liability includes a cancelled assessment.
• Release of a partner in a partnership does not make the
Notice of State Lien erroneous to the other partner. Written
proof is required to release a partner as erroneous (e.g., a
copy of the dissolution of partnership papers with either a
newspaper public notice or a statement with a notarized
signature from the remaining partner).
• A business is awarded to a spouse in a divorce. The EDD
was not a party to the divorce proceedings and cannot be
bound by the decree.
DE 83 Rev. 1 (4-18)(INTERNET) Page 7 of 7
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CHAPTER 8 CONTRACTORS STATE LICENSE BOARD
LICENSING Section 7145.5 of the Business and Professions Code (B&PC)
authorizes the Contractors State License Board (CSLB) to
suspend a license or refuse to:
• Issue a license.
• Reinstate a license.
• Reactivate a license.
• Renew a license.
The above actions may occur if a licensee fails to resolve all
outstanding final liabilities, which include taxes, additions to tax,
penalties, interest, and any fees that may be assessed by the
CSLB, the Department of Industrial Relations, the Employment
Development Department (EDD), or the Franchise Tax Board
(FTB).
When a contractor has violated the provisions of the California
Unemployment Insurance Code (CUIC), the EDD may request the
CSLB to take disciplinary action against the license holder.
LICENSE All businesses or individuals who construct or alter any building,
REQUIREMENTS highway, road, parking facility, railroad, excavation, or other
structure in California must be licensed by the CSLB if the total
cost (labor and materials) of one or more contracts on the project
is $500 or more. More information can be found in Sections 7026,
7028, and 7048 of the B&PC.
ISSUED TO Section 7065 of the B&PC states that a license may be issued to
CORRECT ENTITY an individual, a partnership, a corporation, or a limited liability
company. The license is issued to the individual owner, to the
partnership, to the corporation as it is registered with the
Secretary of State (SOS), or to the combination of licensees who
are parties to the joint venture. Section 7075.1(a) of the B&PC
provides that a contractor’s license is not transferable.
A license is issued to one individual or to one entity and cannot be
used by another. For example, a sole proprietorship would be in
violation for using a license as an individual and as a responsible
managing employee or a responsible managing officer in a
corporation.
If a partner leaves the business, the existing license is canceled.
See Section 7076 of the B&PC regarding additional information
on the cancellation of licenses.
DE 83 Rev. 1 (4-18)(INTERNET) Page 1 of 3
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CHAPTER 8 CONTRACTORS STATE LICENSE BOARD
VALID TIME A license is issued for two years and will expire on the last day of
PERIOD the month in which it was issued. An active license must be
renewed every two years. If a license is inactive, the renewal
period is four years but it is considered “on hold” by the CSLB and
must be restored to an active status to resume contracting.
REQUESTING A The taxpayer’s license may be active, cancelled, revoked, or
CSLB HOLD suspended. The following conditions must exist prior to requesting
a CSLB license hold from Special Procedures Section, Offset
Group:
• The taxpayer’s account balance must be over $1,000 in
accordance with current EDD policy.
• Assessments must be final; a discovery Statement of
Account (DE 2176) and a Collection Notice (DE 6485) must
have been sent.
• A License Demand Notification (DE 7145) notifying the
contractor of the EDD’s intent to request the CSLB to
suspend or delay the license renewal must have been sent
to the taxpayer no less than 15 days and no more than six
months prior to requesting a license hold.
• If an Offer in Compromise agreement is rescinded, a written
notice of rescission and a notice of the amount of
reestablished liability that is due and payable, as provided
under Section 1875(c) of the CUIC, must have been sent in
the same name as the CSLB license holder.
It is not necessary for a Notice of State Tax Lien to have been filed
or recorded prior to requesting a hold.
The CSLB has authorized the EDD to request action and release
on the same contractor’s license as many times as the EDD
deems necessary. However, it is current Collection Division policy
that if a license has been released due to the establishment of an
installment agreement and a default causes a second hold to be
placed, full payment is necessary for the second hold to be
released.
DE 83 Rev. 1 (4-18)(INTERNET) Page 2 of 3
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CHAPTER 8 CONTRACTORS STATE LICENSE BOARD
SAMPLE OF DEMAND LETTER TO CONTRACTOR
EDD D E 7145 ~ Employm e nt
P.O.B XO 431804 Development
Depar tment
LOSANGE EL S, CA 90043-9998 EDD
~
Letter ID: L0000000000
Issued Date: Decemb re8 20, 61
ZYXCONSTRUCTION CORP . CaseID : 0-000-000-000
722 CAPITOL MALL
SACRAMENTO CA 91111-1000
Account ID: 000-0000-0
You have failed topay your Employment Development Department (EDD ta) liax ilit inbthey
amountof$15,000.00. This amount includes accrued interest thro ghuDec mbee 8 r ,20 16.
Demand is hereby made for payment in full within ten (10) days from the date of this
notice.
Section 7145.5 ofthe Business and Professi ons Code provides hat at contractors'license ma y
besuspended for failure to pa ory resolve all outstanding liabilities to the E DD. The
Contractors State License Board will soon be advised o yourf o tstandu ngiliabiliiest .The
license suspension will stay in effect until the liability is etheri paid in full or
satisfactory arrangements have been made for the payment of this liability_
Ifyou have any questions, please ontc ctat ehrepresenta i etatv 888-435-499 0.
DE 714 R5 ev . 2 (1-13) P0.BOX431804, LOS ANGELES ,CA90043-9998 wwwedd.ca. .gov
DE 83 Rev. 1 (4-18) (INTERNET) Page 3 of 3
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CHAPTER 9 FARM LABOR CONTRACTORS
FARM LABOR A farm labor contractor (FLC) as defined in Sections 1682 and
CONTRACTORS’ 1682(b) of the Labor Code (LC) must be licensed by the
LICENSES Department of Industrial Relations’ Labor Commissioner as set
forth in Section 1683 of the LC.
The Employment Development Department (EDD) is authorized
by Section 1141 of the California Unemployment Insurance Code
(CUIC) to notify the Labor Commissioner that an FLC is
delinquent in the payment of worker contributions, State Disability
Insurance (SDI), or Personal Income Tax (PIT), either by self-
assessment or by a final EDD assessment. Section 1690.1 o f the
LC authorizes the Labor Commissioner to refuse to issue or
renew any license until the licensee has fully paid the amount of
the delinquency.
The Labor Commissioner must receive the request for stop order
prior to the license expiration date.
After a stop order has been issued, the Labor Commissioner must
be notified in writing when the liability is paid or when acceptable
arrangements for payment have been made.
EXPIRATION Section 1688 of the LC provides that when a license is first
DATES issued, it shall run to the next birthday of the applicant. Each
license shall then be renewed within the 30 days prior to the
licensee's birthday and shall run from birthday to birthday.
For partnerships, the oldest partner's birthday is used, and for a
corporation or LLC, the anniversary date of incorporation is used.
LICENSE A License Demand Notification (DE 7145) is a letter stating the
DEMAND EDD’s intention to request that the Labor Commissioner stop the
NOTIFICATION renewal of a license and is sent to the taxpayer.
If there is no response from the taxpayer after 15 days (10 days
plus five days for mailing), anFLC Hold/Release Consolidation
(DE 6454) is sent to the Labor Commissioner pursuant to
Section 1690.1 of the LC.
DE 83 Rev. 1 (4-18)(INTERNET) Page 1 of 3
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CHAPTER 9 FARM LABOR CONTRACTORS
SAMPLE OF DEMAND LETTER TO FLC
EDD DE 7145 ----------..... Employment
Im Development
PO O 9B X 89 150 Department
WE STSAC RAMENT , OAC95798-9150 £Do
~
Letter ID: L0000000000
Issued Date: December 29,2016
JOHN SMITH FLC Case ID: 0-000-000-000
722 CAPITAL MALL
SACRAMENTO CA 905814-4703
Account ID:000-0000-1
You have failed to pay your Employment Development Department (EDD) tax liability in the
amountof$22000.00., This amount includes accrued interest through March 29, 2017.
Demand is hereby made for payment in full within ten (10) days from the date of this
notice_
Farm Labor Contractor's License Number:0001
Failure to pay or contact this office may result in the EDD requesting a stop order be placed
against the renewal of your Farm Labor Contractors License' pursuant, to the provisions of
Section 1690.1 of the Labor Code. The stop order will stay in effect until the liability is
either paid in full or satisfactory arrangements have been made for the payment of this
liability.
If you have any questions please, contact the representative at 888-435-4990.
DE 7145Rev.2 ( 1-13 ) PO BOX 989150 WEST, SACRAMEN TO, CA95798-9150 www.edd.ac .gov
DE 83 Rev. 1 (4-18) (INTERNET) Page 2 of 3
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CHAPTER 9 FARM LABOR CONTRACTORS
SAMPLE OF STOP ORDER
EDD DE 6454 .,,,,,,,,...... Empl oymen t
POBOX 826880 MIC 92H EDDDevelopment
SACRAMENTO, CA9 4280-0001 ~ State of California
Letter D:I LOOOOOOOOOO
Issued D tea : Aprli13 2, 10 7
DEPAR TMENT OF INDUSTRAI LRE ALIONST Case ID: 0-000-000-000
DIVISONI O F LABOR STANDARDS EN ORCF MENE T
LICENSING ®STRATIONI UNIT
151 5 CLAY STREET SUITE, 401
OAKLAND, CA94612
NameofLicensee: JOHN SMITH FLC
License Number: FLC0O00OO0
Expiration Date of License: February 04, 2017
OBA: JOH NSMTHI FLC
Thisemployer has failed to payworker contrbutionsi to the Employment Deve pmentlo
Department(EDD)nithe amount of$8,000.92.This empoyerl has a total iabilityl of
$22000.46, with interest through April 13,2017 .
Pursuan tot the provisionsofSections 1690 .1 ofthe Labor Code,EDD requests a stop order
be placedagainst the renewa loftheemployers' Farm Labor Contractors' License until the
liabiliyt sietheri paid n fuli l orsatisfactoryarrangements have been madefor the paymentof
this liabiltyi by the employer . ·
Your assstancei in this matter is greatly appreciated.
Ifyou have any questions please, contact therepresentatvei atthe teephonel number below.
Sncereyi l ,
TaxComplancei Rep .
Collectoni Divsioni
1-888 -435-4990
DE6454 Rev. 1 (1- 17) PO BOX 826880MIC 92H, SACRAMENTO,C A 94280-0001 www.edd.ca.gov
DE 83 Rev. 1 (4-18) (INTERNET) Page 3 of 3
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CHAPTER 10 INTERAGENCY OFFSETS
INTERAGENCY An interagency offset is a procedure that the EDD uses to collect a
OFFSETS liability owed by a person or entity from any money due to that
person or entity by another government agency. The source falls
into two categories:
• State: An agency within the State of California
State offsets are received from various state agencies and are
deducted from monies paid for a variety of reasons.
• Federal: Department of Treasury
Federal offsets are deducted from federal income tax refunds and
are a result of the Treasury Offset Program (TOP).
STATE Section 12419.5 of the Government Code (GC) authorizes the
OFFSETS State Controller’s Office (SCO) to collect money due to one state
department by a person or entity, by deducting the amount from
any money that may be owing to such person or entity by another
state department. This procedure is called offset. Requirements
are defined in Section 8790 of the State Administrative Manual
(SAM).
The amounts payable to a person or entity may have resulted
from:
• A tax refund
• Lottery winnings
• License fees
• Payment for services or materials furnished
An allowable offset can be initiated on any final amount due or
when a statement has been sent, except in the case of
bankruptcies, assessments that are not final, and assessments
that have been petitioned.
A Notice of State Tax Lien (DE 2181) is not required to be
recorded with a county or filed with the Secretary of State (SOS)
when requesting an offset. Section 12419.4 of the GC provides an
immediate lien in the amount of the unpaid taxes against all
property held or owned by other state agencies.
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CHAPTER 10 INTERAGENCY OFFSETS
STATE Pursuant to Section 8776.6 and 8790 of the SAM, the taxpayer
OFFSETS must be notified 60 days prior to being offset. This requirement is
(cont’d.) met when a Collection Notice (DE 6485) is sent to the taxpayer.
Sources of state offset:
1. Franchise Tax Board (FTB):
• Personal Income Tax (PIT) refunds
• Lottery winnings
• Unclaimed property
2. FTB: Bank and corporation tax refunds
3. California Department of Tax and Fee Administration (CDTFA)
4. Other state agencies
An offset overpayment CANNOT be held for future liabilities (i.e.,
the filing ofdelinquent reports or be offset to another agency).
FTB The SCO must approve an agency’s participation in the
INTERAGENCY Interagency Intercept Collection Program (Offset). A written
INTERCEPT Request-to-Participate must be submitted to the SCO.
COLLECTION
PROGRAM
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CHAPTER 10 INTERAGENCY OFFSETS
MULTIPLE PIT Section 12419.3 of the GC states that when multiple agencies
OFFSET request an intercept for the same taxpayer, the FTB will channel
PRIORITIES any intercepted funds to agencies in the following order:
1. The non-payment of child or family support accounts enforced
by a local child support agency.
2. The non-payment of child or family support accounts enforced
by someone other than a local child support agency.
3. The non-payment of spousal support accounts enforced by a
local child support agency.
4. The non-payment of spousal support accounts enforced by
someone other than a local child support agency.
5. The non-payment of penalties to the Restitution Fund.
6. The benefit overpayment accounts administered by the
Employment Development Department (EDD) if no signed
reimbursement agreement exists, or if two consecutive
payments on a reimbursement agreement are delinquent at
any time.
7. Other offset accounts in the priority determined by the SCO.
OTHER STATE Funds from the following cannot be offset:
AGENCIES’
OFFSETS • Bureau of Unclaimed Property (This property does not belong
to the state, but to the individuals.)
• DentiCal*.
• Workers’ compensation awards*.
• Refunds of retirement contributions.
• Unemployment Insurance (UI) or Disability Insurance (DI)
benefits.
*These funds belong to private organizations.
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CHAPTER 10 INTERAGENCY OFFSETS
SECURITY Under the provisions of Section 12419.4 of the GC, the EDD is
DEPOSITS authorized to offset against:
• Security deposits held by various state agencies’ treasury trust
bank accounts, except for CDTFA, or any other state agency
whose deposits are held by a private financial institution.
• Bonds deposited by the agencies holding the items with the
State Treasurer.
However, an offset against the security deposit may not be made
until the deposit is due to be refunded to the taxpayer.
FEDERAL LEVY Section 926.8 of the GC provides that whenever a federal agency,
in the collection of taxes or amounts owing to it, is authorized by
federal law to levy administratively on credits owing to a debtor, it
may file a certificate of claim with the state against funds owing by
the state to such debtor. When a request for payment is received
under this procedure, amounts due the state by the debtor are
first offset before any payment is made to the federal government.
Subject to the provisions in Section 12419.4 and 12419.5 of the
GC, the SCO shall issue the warrants payable to the United
States Treasury. Refer to Section 8790.6 of the SAM for SCO
procedures.
FEDERAL The TOP is a result of the Internal Revenue Service (IRS)
OFFSETS Restructuring and Reform Act of 1998 as set forth in
Section 6402(e) of Title 26, United States Code (U.S.C.), and
Part 285.8 of the Title 31, Code of Federal Regulations. This act
allows the Secretary of the Treasury to offset federal tax refund
payments to collect past due, legally enforceable state tax
obligations reported to the Secretary of Treasury by states.
Effective January 1, 1999, the IRS tax refund offset program was
merged into TOP, operated by the Bureau of the Fiscal Service
(BFS) (previously known as the Financial Management Service), a
bureau of the U.S. Department of Treasury.
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CHAPTER 10 INTERAGENCY OFFSETS
BUREAU OF When an offset occurs, the BFS notifies the taxpayer that their
FISCAL SERVICE refund has been sent to the EDD. In the notice to the taxpayer,
OFFSET the BFS provides the amount and date of the offset and the
PROCESS Taxpayer Assistance Center’s contact phone number
and address.
PRIORITIES Federal law indicates how a tax refund payment will be applied
FOR FEDERAL when a taxpayer has debts with multiple agencies. The payment
OFFSET priorities are mandated by Section 6402(e) of the Title 26, U.S.C.
Before authorizing the BFS to disburse a tax refund payment, the
IRS will apply any amount of refund to federal tax liabilities of the
taxpayer. Then, the tax refund payment will be reduced and
applied to a taxpayer’s debts in the following order of priority:
• IRS income tax liabilities.
• Past due child support assigned to a state.
• Any past due, legally enforceable debt owed to a
federal agency.
• Past due child support not assigned to a state.
• State tax liabilities.
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CHAPTER 11 INTERIM REPORTINGS
INTERIM Interim reporting is accelerated reporting of subject wages and
REPORTING payment of contributions and withholdings. Interim reporting may
be required of the employer under the provisions of Section 1115
of the California Unemployment Insurance Code (CUIC).
Active employers may be placed on interim reporting to prevent an
increase in their tax liability. Interim reporting is used to assure that
the employer remains current while liquidating delinquent liability.
The employer will be required to continue on interim reporting until
all delinquent liabilities are satisfied and the financial condition of
the business has stabilized.
For ease of reconciliation and control, the reporting periods should
coincide with the employer’s payroll period or be made at least on
a monthly basis. The Interim Contribution Return (DE 2858) will be
used by the employer to file interim returns and pay the amounts
due to the designated field office.
Employers that have been placed on interim reporting by the
Employment Development Department (EDD) pursuant to
Section 1115 of the CUIC are not relieved of the deposit
requirements under Sections 13021(c) and (d) of the CUIC for
withholdings.
REQUIREMENTS Authority to require the filing of returns and payment of
FOR INTERIM contributions at less than quarterly periods has been delegated by
REPORTING the EDD Director to Senior Tax Compliance Representatives and
above.
Section 1115 of the CUIC requires any of the following findings:
• The employing unit is insolvent.
• The employing unit is delinquent and a substantial amount of
contributions due.
• The employing unit has discontinued or is about to discontinue
business at any of its known locations.
• The business is of a temporary or seasonal nature.
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CHAPTER 11 INTERIM REPORTINGS
REQUIREMENTS When the interim reporting periods have been determined, a
FOR INTERIM demand letter is sent to the employer as notification of the required
REPORTING filing periods. The demand letter must provide the employer with at
(cont’d.) least 10 days advance notice. The initial interim report and
payment will start at the beginning of the current quarter and
continue to the end of the next pay period that occurs after the
demand letter is sent. All interim reports and required contributions
are due the first day after the end of the interim reporting period
and become delinquent if not filed and paid within 10 days of the
due date.
Example: If an employer is placed on monthly interim reporting as
of July 1 and the demand letter is sent August 17, the employer
will be required to submit the first interim return covering the period
July 1 through August 31 by September 1. If the interim report and
payment are not received by September 10, a penalty of
15 percent (10 percent for periods prior to 3rd quarter 2014) of the
amount due plus interest will be added.
The written notice shall be served in person or by mail. If the
notice is sent by mail, it should be sent by certified mail. When
possible, the notice should be hand delivered to the employer
along with the reporting form DE 2858.
TERMINATION The case assignee will determine when to terminate the interim
OF reporting requirement.
REQUIREMENT
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CHAPTER 12 LIQUOR LICENSE HOLD
LIQUOR Section 24049 of the Business and Professions Code (B&PC)
LICENSE authorizes the Employment Development Department (EDD) to
HOLDS request from the Department of Alcoholic Beverage Control (ABC)
to place a hold on certain types of liquor licenses.
A liquor license hold is a lien specifically on the liquor license. A
recorded Notice of State Tax Lien (DE 2181) is not required.
A hold establishes a priority to any monies received from the sale
of the liquor license and prevents the transfer of a liquor license
from the seller to the buyer until the conditions of the hold have
been met. In order to establish priority, an Order to Withhold
Transfer of Liquor License (DE 271) must be on file with the ABC.
The hold is in effect until released or the liquor license is revoked
by the ABC.
Holds may be placed on a liquor license if the taxpayer has an
established liability with the EDD.
TYPE OF
TYPE DESCRIPTION
LICENSE
20 Off-Sale Beer and Wine: A liquor license must be in
a moratorium county.
Section 23817.5 of the B&PC Off-Sale Beer and
Wine License Moratorium
A countywide moratorium on the issuance of
original Type 20 licenses will exist after January 1,
1995, in 48 counties. There are 10 counties where
a countywide moratorium does not exist. Call
Special Procedures Section, Offset Group (SPS,
OG) for further information.
21 Off-Sale General
47 On-Sale General Eating Place
48 On-Sale General Public Premises
49 On-Sale General Seasonal
57 Special/Seasonal
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CHAPTER 12 LIQUOR LICENSE HOLD
TYPE OF Holds may not be requested on the following types of licenses:
LICENSE
(cont’d.)
TYPE DESCRIPTION
40 On-Sale Beer
41 On-Sale Beer and Wine for Bona Fide Public
Eating Place
42 On-Sale Beer and Wine Eating Place
51 Club
70 On-Sale General Restrictive Service
LIQUOR When a liquor license is to be sold or transferred and the EDD
LICENSE has a DE 271 on file, the escrow holder must request a liquor
DEMANDS license demand from the EDD. The SPS, OG, is responsible for
preparing the liquor license demand.
When a business is sold and a liquor license is involved, a
separate demand is issued for the liquor license proceeds. The
SPS, OG, will prepare the liquor license demand and an Area
Audit Office in the Field Audit and Compliance Division will prepare
the business sale demand. Escrow holders may not be aware of
an ABC hold. If a request for an escrow clearance is received,
notify the SPS, OG, immediately if a liquor license is involved.
Delinquent reports should be obtained or a liability assessed prior
to the issuance of a liquor license demand.
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CHAPTER 12 LIQUOR LICENSE HOLD
ESTABLISH IF THEN
LIABILITY FOR
LIQUOR The employer is operating a Include liability covering all
LICENSE diversified business on the operations.
DEMAND same premises, for example, a
restaurant, bar, and cocktail
lounge.
The employer has multiple The entire liability of the
licensed premises in California. entity should be included in
the demand.
The seller is operating the Contact employer to obtain
business pending transfer of delinquent and/or final
license. return(s).
Required reports have not been Prepare a Section 1126 of
received. the California
Unemployment Insurance
Code (CUIC) estimated
assessment. When the
assessment has been
mailed, include the amount
due in the demand plus the
Section 1135 of the CUIC
penalty on an assessment
that is not final.
The employer is continuing in Prepare an assessment
business until the expected date including estimated wages
of transfer. to the date of transfer.
A liability isincurred by an The liability follows the
individual, other than the holder liquor license. The licensee
of the liquor license, who is is liable when another
using the liquor license being person isusing their liquor
transferred. license and a tax liability is
incurred.
The employer has multiple The entire liability of the
licensed premises in California. entity should be included in
the demand.
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CHAPTER 12 LIQUOR LICENSE HOLD
INSUFFICIENT If the demand for payment from the EDD, California Department of
FUNDS IN Tax and Fee Administration, Franchise Tax Board, or a county
ESCROW with an unsecured property tax exceeds the amount of the funds in
PRO RATA escrow, the various agencies will prorate the funds in escrow. The
pro-rata demand is prepared by the agency with the largest
liability. Once the agencies come to an agreement, a demand will
be made to the escrow agent. The SPS, OG will prepare an
amended demand with the EDD’s prorated liability amount.
Since the entire liability was not collected from the seller due to the
pro-rata on the liquor license, the remaining balance must still be
collected from the seller. With respect to the liquor license only,
the buyer would not be liable pursuant to Section 1733 of the
CUIC with respect to the liquor license only. However, the buyer
may still be liable pursuant to Section 1733 of the CUIC with
respect to the purchase of other assets, if any.
DISBURSEMENT After the disbursement of funds to the agencies and/or counties
OF MONEY IN with a hold, the remaining escrow funds are distributed to the
ESCROW payment of claims in the following order as directed by
Section 24074 of the B&PC:
1. Internal Revenue Service and other taxing agencies.
2. Wages or salaries accrued prior to the sale, transfer, or
opening of an escrow.
3. Payments of secured creditors.
4. Mechanics liens.
5. Escrow fees.
6. Payments on claims of goods sold.
7. All other claims reduced to court ordered judgments.
8. Payment of other claims.
PAYMENT When full payment in the form of cash, cashier’s check, money
RECEIVED order, or certified check is received, notify the SPS, OG to release
the liquor license hold. Personal or business checks are not
acceptable for immediate release. No written release is provided to
the taxpayer.
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CHAPTER 13 NOTICE OF LEVY
NOTICE OF LEVY A Notice of Levy (DE 8005) is issued to attach the credits or
personal property of any delinquent account. This includes active,
inactive, and responsible person accounts. The issuance of a
Notice of Levy is authorized by Section 1755 of the California
Unemployment Insurance Code (CUIC) and attaches funds in an
account as defined in Section 9102(a)(2) of the California
Commercial Code (CCC).
The Notice of Levy may be issued to:
• Financial Institutions, including:
o Banks
o Savings and loan institutions
o Credit unions
o Trust companies
The Notice of Levy requires that any funds held at the time of
receipt of the Notice of Levy be remitted to the Employment
Development Department (EDD).
• Third-Party Accounts Receivable:
o A third party who has been served a Notice of Levy must
surrender assets within five days after the assets are
payable to the taxpayer.
o A Notice of Levy to a third party remains in force for one
year and may be renewed.
• Credit Card Processors: A Notice of Levy to a credit card
processor remains in force for one year and may be
renewed.
Section 1755(a) of the CUIC directs that the Notice of Levy be
served in person or by first class mail. Section 1755.1 of the CUIC
allows for service electronically:
• Not later than three years after the payment of any
contributions, penalties, or interest became delinquent. Only
during this period, a recorded Notice of State Tax Lien is not
necessary.
Or
• Within 10 years from the recording of a judgment or the filing
of a Notice of State Tax Lien.
A stop notice (mechanics lien) has priority over a Notice of Levy as
outlined in Section 9456 of the California Civil Code.
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CHAPTER 13 NOTICE OF LEVY
ISSUANCE The Notice of Levy is a four-part form. A voucher, two copies of
the notice, and an answer page are mailed, served, or
electronically transmitted.
METHOD OF A Notice of Levy can be serviced via:
SERVICE
• Regular USPS mail
• In person
• Electronic media
RESULTS When a response to the Notice of Levy is received, use the
following table to determine the next action:
IF THEN
A partial payment or Issue an Amendment to Notice of Levy
payment in full with (DE 8016). For accounts receivable Notice
guaranteed funds is of Levy, issue a DE 8016 to each account
received from other receivable.
than the Notice of
Levy
Failure to remit Section 1757 of the CUIC provides that
failure to surrender credits or other
personal property shall make that person
liable for the value of the credits or other
personal property up to the amount
specified in the Notice of Levy.
Failure to respond Contact the recipient of the levy to verify
receipt and emphasize the instructions
on the front of the Notice of Levy.
Negative response
• Taxpayer not • Contact the payee and give specific
identified personal information that helps identify
the taxpayer.
• Unable to locate
• Issue another Notice of Levy.
• No funds at this
time
Taxpayer has Verify the exact dat e and time of the
filed bankruptcy bankruptcy filing. The EDD will not
automatically release a Notice of Levy
when the taxpayer files bankruptcy after
the Notice of Levy is served.
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CHAPTER 13 NOTICE OF LEVY
PROCESS When payments are received in response to a Notice of Levy:
PAYMENTS
• Prepare a DE 8016 to modify or release a Notice of Levy. A
Notice of Levy may be released in whole or in part.
• If an overpayment occurs as the result of a Notice of Levy,
the overpayment must be returned to the taxpayer.
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CHAPTER 14 OFFERS IN COMPROMISE
OFFERS IN Sections 1870 through 1875 of the California Unemployment
COMPROMISE Insurance Code (CUIC) on Offers in Compromise (OIC) became
effective on January 1, 1994. An OIC allows the Employment
Development Department (EDD) to enter into an agreement with
qualified taxpayers to accept partial payment in satisfaction of the
full liability for unpaid amounts due when it is determined to be in
the best interest of the state. A determination not to accept an OIC
is not subject to administrative appeal or judicial review. No claim
for refund of amounts paid pursuant to an OIC may be filed.
Submission of an offer does not suspend collection action on a
liability. If there is any indication that filing an offer is solely for the
purpose of delaying collection or will negatively impact the EDD’s
ability to collect tax, collection efforts will continue. If the EDD has
previously agreed to an installment agreement, those payments
must continue. Notices of State Tax Lien, offsets, and Earnings
Withholding Orders for Taxes (EWOTs) will remain in place until all
terms of the offer are met, up to the payment in full of the offered
amount.
The OIC process is centralized in the Offers in Compromise Unit
(OICU) in the Special Procedures Section, Special Procedures
Group.
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CHAPTER 14 OFFERS IN COMPROMISE
CONDITIONS The Section 1870(a) of the CUIC states that an employer or any
REQUIRED FOR individual assessed under Section 1735 of the CUIC who owes
CONSIDERATION delinquent contributions, withholdings, penalty, or interest to the
EDD may enter into an OIC agreement under the following
conditions:
• Applicant’s business must be inactive and no longer
operating. If the business is still operating and active, the
owner, partner, or an individual assessed under Section
1735 of the CUIC may apply only if s/he no longer has a
controlling interest or any association with the business that
incurred the liability.
• Applicant does not have access to current income sufficient
to pay more than the accumulating interest and 6.7 percent
of the outstanding liability annually.
• Applicant does not have prospects of acquiring increased
income or assets which would enable the liability to be paid
within a reasonable period.
• Applicant does not have assets, whether or not subjected to
aNotice of State Tax Lien (DE 2181) by the EDD, which if
sold, would satisfy the liability.
• The amount offered is more than the EDD could expect to
collect through involuntary means within four years after the
offer is made.
• The compromise offer must be submitted in writing by
completion of an Offer in Compromise Application (DE 999A)
or a Multi-Agency Form for Offer in Compromise (DE 999CA).
• Only non-petitioned, final tax liabilities will be considered.
• Liabilities that arose as a result of fraud or actions that
resulted in a criminal conviction under the CUIC shall not be
compromised.
Section 1870(b) of the CUIC allows the EDD to permit the
approved offer amount be paid in installments, not to exceed a
five-year period, if the applicant does not have the ability to pay
in full.
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CHAPTER 14 OFFERS IN COMPROMISE
FORGIVING Per Section 1871 of the CUIC, any agreement that reduces the
AMOUNTS OF liability by $10,000 or more shall not be effective until it is reviewed
$10,000 OR and approved by the California Unemployment Insurance Appeals
MORE Board (CUIAB). Based on the file submitted by the EDD, the
CUIAB will review and determine if all OIC conditions are satisfied.
CASE The purpose of an OIC assignment is to investigate the validity of
ASSIGNMENTS the request and make a recommendation for approval or denial of
the request.
When an OIC application is received, an OIC case is opened. If
there is an open delinquency collection case assignment, that
collection case remains active. The OICU investigates only the
application for the OIC and does not take any collection action.
New collection actions on an account are generally not initiated
while the account is being reviewed for an OIC. However, any
collection actions that were previously processed remain in effect,
pending notification to the assignee of any determinations made by
OICU staff. This includes EWOTs, Notices of Levy, warrants,
offsets, and installment agreements. Funds received from actions
initiated prior to the final approval of an offer do not apply toward
the offered amount.
All form delinquencies and non-monetary problems must be
resolved on the account prior to processing the OIC application. It
is the taxpayer’s responsibility to resolve these issues with
the EDD.
An agreement to accept partial payment in satisfaction of a liability
does not relieve any other responsible taxpayers of the obligation
to pay the remaining unpaid balance due. If one partner or
Section 1735 of the CUIC responsible person is under an OIC
agreement and the remaining party is not, the EDD will continue
with collection activity for that unaffected partner(s), corporate
officer(s), or responsible person(s) under Section1735 of the
CUIC.
APPROVED The OICU will monitor the OIC payments until the compromise is
APPLICATIONS satisfied in full and cancel any remaining liability. Collection action
will continue on any party in a business that is not under a current
OIC agreement.
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CHAPTER 14 OFFERS IN COMPROMISE
DENIED The OICU shall notify the applicant, in writing, of a denied
APPLICATIONS application. The denial letter will contain a statement requesting
that the taxpayer contact the Taxpayer Assistance Center or the
closest area office as soon as possible to arrange payment of the
liability.
RESCISSION An OIC may be rescinded after it has been accepted. The OICU
will rescind the agreement if it is determined that any person
willfully did any of the following:
• Concealed from any officer or employee of the state any
assets or property belonging to the estate of the applicant or
other person liable with respect to the tax liability.
• Received, withheld, destroyed, mutilated, or falsified any
book, document, or record.
• Made any false statement relating to the estate or financial
conditions of the applicant or other person liable in respect to
the tax liability.
• Failed to pay any tax liability owed to the EDD for any
subsequent, active business in which the applicant or
individual who previously submitted the OIC has a controlling
interest or association.
• Failed to pay the compromised amount as agreed.
If an OIC has not been satisfied and the Notice of State Tax Lien
(DE 2181) has not been released, the full liability is due.
If the OIC had been satisfied and the lien released, rescinding the
OIC under Section 1875 of the CUIC provides that the previously
compromised liability should be re-established and may be
re-liened regardless of the statute of limitations.
PROCESSING A An applicant who has an offer rescinded may not request or apply
RESCISSION for a subsequent OIC.
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CHAPTER 15 INSTALLMENT AGREEMENTS
INSTALLMENT Taxpayers have a legal obligation to report and pay contributions
AGREEMENTS and withholdings when due. If a taxpayer becomes delinquent in
the payment of amounts due, the Employment Development
Department (EDD) will take appropriate action to collect the full
amount immediately. The EDD recognizes that there are situations
where it is in the best interest of the state and the taxpayers of
California that an installment agreement to pay amounts due over a
period of time is allowed.
An installment agreement may be requested by phone, by letter, on
e-Services for Business, or by completing an Installment
Agreement Request (DE 927B). Taxpayers are to be informed that
requesting an installment agreement will not prevent a Notice of
State Tax Lien (DE 2181) from being filed and that the EDD will
continue to offset any state agency and federal tax refunds during
the payment period. Any payment received from these sources will
be in addition to the payment terms of the agreement. The
taxpayer’s liability must be paid off as quickly as possible.
TYPES OF There are four types of installment agreements authorized by the
AGREEMENTS EDD: short-term, long-term, non-standard, and e-Services for
Business. All types require the taxpayer to file all delinquent reports
and to file and pay current and future deposits and reports before
the filing delinquent date. If an audit assessment is issued after an
agreement has been reached, the terms of any type of agreement
may be renegotiated allowing additional time to pay the
assessment.
Short-term Agreement
An EDD representative will review the account to ensure forms,
filings, and applicable deposits are current and search for an
installment agreement default history. If the tax liability is less than
$25,000 for an active business or less than $10,000 for an inactive
business, a short-term installment agreement may be established
during the initial contact. The taxpayer must indicate verbally or in
writing that the liability will be paid within one year (or 18 months for
an audit assessment).
Approval of a short-term agreement is based on the judgment of the
staff or their manager and may not be approved for taxpayers with
a history of multiple delinquencies. A short-term agreement will not
be granted in cases involving fraud.
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CHAPTER 15 INSTALLMENT AGREEMENTS
TYPES OF Long-term Agreement
AGREEMENTS
(cont’d.) When a taxpayer is unable to pay the balance due within the time
and monetary limits specified for a short-term agreement, additional
information is required for consideration of a long-term agreement.
Appropriate staff will review all necessary documents and
information.
The taxpayer must include a good faith payment and submit a
written request that includes:
• An explanation of how the liability was established.
• The action taken to resolve the liability.
• The taxpayer’s plan to keep current on future financial
obligations to the EDD for active accounts.
• The proposed repayment terms.
• Financial information regarding the business and personal
assets for assessed corporate officers with supporting
documentation.
• A Financial Statement (DE 926B) for individuals and a
Financial Statement for Businesses (DE 926C) are available.
Any recent financial statement which has the same data is
acceptable.
Non-Standard Agreement
When a taxpayer is unable to pay the balance due within the time
and monetary limits for a short or long-term agreement or the
taxpayer wishes to make payments with a paper coupon in lieu of
using Automated Clearing House (ACH) debit, a non-standard
installment agreement will be negotiated. Non-standard refers to
the fact that the agreement does not fall into either the short-term or
long-term agreement criteria. If the non-standard agreement is due
to the employer’s request to submit payment coupons in lieu of
using ACH debit on a short-term agreement, no further
documentation is required. The same documentation required for a
long-term agreement for an inactive account is necessary if the
non-standard agreement is due to either of the following:
• The balance of liability is greater than the short-term agreement
threshold.
• The timeframe for repayment exceeds the long-term agreement
threshold.
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CHAPTER 15 INSTALLMENT AGREEMENTS
TYPES OF e-Services for Business Agreement
AGREEMENTS
(cont’d.) If an employer payroll tax account has an active collection case
without a case assignee, the employer may establish their own
installment agreement on e-Services for Business. These
agreements are all short-term.
e-Services for Business installment agreement requirements:
• ACH debit
• 12 months maximum
• $20,000 maximum for active employers
• $10,000 maximum for inactive employers
Audit Assessment
When the liability is the result of an audit assessment, and the
taxpayer is unable to pay in full, the EDD may allow up to 18
months to pay in full with a short-term installment agreement. If the
taxpayer is currently in an agreement, the terms may be
renegotiated. The audit assessment and the account balance must
be considered separately when determining the type of installment
agreement the taxpayer qualifies for. The audit portion of the liability
may be paid in installments, not to exceed 18 months. Any other
amounts must follow the guidelines for short-term or long-term
agreements.
Short-term agreements may be negotiated by the auditor as part of
his/her audit. Because of their complexity, it may be necessary to
set up some agreements as non-standard agreements. When other
liabilities exist or the taxpayer requests a long-term agreement, the
auditor will refer the taxpayer to the tax compliance representative.
The Section 1135 of the California Unemployment Insurance Code
(CUIC) penalty must be included when determining if an
assessment balance qualifies for short-term installment agreement
limitations.
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CHAPTER 15 INSTALLMENT AGREEMENTS
REQUIRED
ACTIVE ACCOUNTS
DOCUMENTATION
AND APPROVAL
AGREEMENT TIME
MINIMUM REQUIREMENTS
PERIOD
Short-term: The following items are required:
Less than one year • Signed Installment Agreement
(DE 927) or a letter detailing the
and payment plan.
Less than $25,000 • Good faith payment.
•
Short-term agreements Start date of the agreement will be no
for audit assessments more than 10 working days after
may be allowed an verbal agreement has been
additional six months to established.
pay with manager • All delinquent forms.
approval.
• Approval may be made by the case
assignee.
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CHAPTER 15 INSTALLMENT AGREEMENTS
REQUIRED
ACTIVE ACCOUNTS
DOCUMENTATION
AND APPROVAL
(cont’d.) AGREEMENT TIME
MINIMUM REQUIREMENTS
PERIOD
Long-term: The following items are required in
addition to those outlined for short-term
More than one year agreements:
or • Written explanation of
the financial
Over $25,000 difficulties being experienced, a plan
to stay current, and a plan to liquidate
outstanding liability.
• Corporate Information Questionnaire
(DE 204) completed by each
responsible person if the entity is a
corporation and the balance is more
than $50,000 of assessable liability.
• Financial statement(s), personal
and/or business, with documentation
of financial status (i.e., loan denials,
tax returns, bank statements,
accountant’s financial reports, etc.).
• Full listing of all accounts receivable
showing name, address, and the
amount owing to the taxpayer.
• Supporting documentation of financial
statement entries, if additional
information is needed.
• Approval by aTax Administrator (TA) I
or TA II.
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CHAPTER 15 INSTALLMENT AGREEMENTS
REQUIRED
INACTIVE ACCOUNTS
DOCUMENTATION
AND APPROVAL
(cont’d.) AGREEMENT TIME
MINIMUM DOCUMENTATION
PERIOD
Short-term: • Signed DE 927 or letter outlining the
installment agreement.
Less than one year
• Good faith payment.
and
• Start date of the agreement will be no
Less than $10,000 more than 10 working days after
verbal agreement has been
Short-term agreements established.
for audit assessments • Approval by the case assignee.
may be allowed an
additional six months to
pay with manager
approval.
Long-term: The following items are required in
addition to those outlined for short-term
More than one year agreements:
and • If the entity is a corporation and the
balance is more than $10,000 of
More than $10,000
assessable liability, a DE 204
establishing the liability of corporate
responsible persons.
• Written explanation of how the liability
was created.
• Financial statement(s), personal
and/or business, with documentation
of financial status (i.e., loan denials,
tax returns, bank statements,
accountant’s financial reports, etc.).
• Supporting documentation of financial
statement entries, if additional
information is needed.
• Approval by a Senior Tax Compliance
Representative or TAI.
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CHAPTER 15 INSTALLMENT AGREEMENTS
ACCEPTANCE When an installment agreement is accepted, notify the taxpayer
that the agreement has been approved and the following conditions
apply:
• All future deposits and reports are to be filed and paid timely to
the EDD.
• A Notice of State Tax Lien (DE 2181) will be filed on all unpaid
liabilities.
• The EDD will take immediate involuntary collection action if the
agreement is not kept, or an unreported improvement in
financial condition is discovered.
• The EDD will continue to offset any state agency and federal tax
refunds.
• A new financial statement must be provided after 12 months.
• The taxpayer must immediately notify the EDD representative
when a significant improvement or deterioration in their financial
circumstances occurs.
If an audit assessment is issued after an installment agreement is in
effect, the agreement may be renegotiated, unless a penalty was
applied under Section 1128.1 of the CUIC.
DENIAL Contact the taxpayer with an explanation of the denial.
MONITORING Installment agreement accounts may be reviewed every 12 months
for a possible change in financial condition of the taxpayer. If a
review of the taxpayer’s financial condition establishes an increased
ability to pay, a written notice will be sent to the address of record
requesting the taxpayer to contact the office. If the taxpayer
responds within 15 days, the terms of the agreement will be
renegotiated. If the taxpayer does not respond, the installment
agreement is in default.
The installment agreement will remain in effect for the time period
negotiated unless the taxpayer fails to meet the agreed upon terms.
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CHAPTER 15 INSTALLMENT AGREEMENTS
DEFAULT Involuntary collection action will be taken immediately if the
taxpayer defaults on the agreement.
A default will occur under the following conditions:
• The taxpayer fails to send the payment.
• The payment is not timely.
• The payment is less than the amount agreed upon.
• A check is returned by the bank for non-payment.
• An active taxpayer fails to file required tax forms on a timely
basis without just cause.
• An active taxpayer fails to submit a timely electronic Payroll Tax
Deposit (DE 88).
• An active taxpayer fails to submit an Interim Contribution Return
(DE 2858) when specifically required as a condition of the
agreement.
• The taxpayer provided false, inaccurate, or incomplete
information.
• Taxpayer fails to inform the EDD that their financial position has
improved.
o If the taxpayer voluntarily provides updated financial
information, the terms of the agreement may be
renegotiated.
• A taxpayer fails to pay current taxes by the due date, incurring
additional liability after the agreement is negotiated.
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CHAPTER 16 ASSIGNMENT FOR BENEFIT OF CREDITORS, RECEIVERSHIP
ASSIGNMENT The assignment for the benefit of creditors is an alternative to
FOR BENEFIT OF bankruptcy. An assignment is the transfer of a claim, right, interest,
CREDITORS or property. A general assignment for the benefit of creditors is the
transfer of all, or substantially all, of the taxpayer’s (assignor’s)
property to another person in trust (assignee). Some of the
transactions that may take place are:
• Collection of any money owing to the taxpayer.
• Sale of the property.
• Distribution of the proceeds to the creditors.
• Return of the surplus proceeds, if any, to the taxpayer.
A transfer of property to secure a debt, which is not intended as an
absolute disposition of the property, is not an assignment for benefit
of creditors.
A voluntary assignment may be made by an employer to:
• Secure assets from attachment by creditors.
• Assist the employer to remain solvent.
• Avoid the filing of bankruptcy.
Section 1701(b) of the California Unemployment Insurance Code
(CUIC) provides that the employer and employee contributions, that
are required to be paid by an employer, together with interest and
penalties, shall be satisfied first whenever the employer makes a
voluntary assignment of assets.
RECEIVERSHIP A receivership is a legal proceeding in which a receiver is appointed
for an insolvent corporation, partnership, or individual. A receiver is
a person appointed by a court to take into custody the property or
funds of others and manages the property in litigation.
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CHAPTER 16 ASSIGNMENT FOR BENEFIT OF CREDITORS, RECEIVERSHIP
NOTIFICATION If the notification that a taxpayer is in an assignment for the benefit
of creditors or a receivership, the account should be assigned to the
Special Procedures Section, Bankruptcy Group (SPS, BG). The
SPS, BG, will file claims in order to protect the Employment
Development Department’s (EDD) interests and will handle all
follow-up actions until the case is closed.
DUTIES AND Section 1090(a) of the CUIC requires that every receiver, assignee,
RESPONSIBILITIES or other representative of an insolvent employer shall send a written
notice of the following to the EDD within 30 days of assuming office:
• Name and address of the taxpayer.
• Name and address of the receiver, assignee, or other
representative.
• Other information as may be required by the Director of the
EDD.
Section 1736 of the CUIC provides that in addition to other
penalties, failure to file the notice required by Section 1090 of the
CUIC shall cause the assignee, receiver, or other representative of
an insolvent employer to be personally responsible for all losses in
contributions, penalties, and interest attributable to such failure.
This liability may be enforced by a civil action in the name of the
State of California against the assignee, the receiver, or any other
representative.
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CHAPTER 16 ASSIGNMENT FOR BENEFIT OF CREDITORS, RECEIVERSHIP
EDD CLAIMS FOR The EDD’s claim must be filed within four months from the mailing
ASSIGNMENTS of the notice from the receiver or assignee.
AND
RECEIVERSHIPS Prior to the filing of the claim, SPS, BG, should attempt to secure all
missing returns and post them to the account to ensure the claim is
correct.
An assignee or receiver may or may not accept claims for his or her
cases. Claims that are accepted will have all current liabilities
submitted with interest computed through the end of the current
month of the date of the claim.
The claim will include a breakdown of taxes claimed, the period
covered, and the amounts of taxes, penalties, and interest.
The claim must be filed before the last timely date and must include
all account numbers and related account numbers.
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CHAPTER 17 PROBATE
PROBATE Probate is a court procedure that includes all matters pertaining to
the administration of estates, guardianships, and the validity of wills.
A will is an instrument by which a person makes a disposition of their
property to take effect after their death.
If a title to, or an interest in, real or personal property is affected by
the death of a person, another person who claims an interest in the
property may commence a probate proceeding. Any person who has
interest in the property of the deceased may file a petition in a
superior court showing his or her claim or right to the money and any
other property of the estate.
The probate proceedings shall be filed in the superior court of the
county in which the decedent was a resident at the time of death or
in the county in which the property is located.
The death of a sole proprietor or partner does not result in a new
employing unit where the fiduciary or the fiduciary together with a
surviving partner(s) continues the operation of the decedent’s
business. A fiduciary is a person or institution that manages money
or any other property for another and must exercise a standard of
care in such management activity imposed by law or contract. A
fiduciary may be an executor of the estate, a trustee, or a receiver.
Section 1701(c) of the California Unemployment Insurance Code
(CUIC) provides that the required employer and employee
contributions, penalty, and interest shall be satisfied first whenever
the executors, administrators, or heirs are handling the estate of an
employer with insufficient assets to pay all the debts due from the
deceased.
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CHAPTER 17 PROBATE
TYPES OF Estates of a deceased may be:
ESTATE
• Testate
o A decedent has lef t a will.
o An executor is named in the will to administer the estate of
the deceased.
o The superior court grants letters oftestamentary appointing
the executor.
• Intestate
o The decedent did not leave a will regarding the disposal of
his or her property.
The superior court may appoint a personal representative to
administer the estate (usually a county administrator or a public
guardian office).
AUTHORITY OF The superior court authorizes the personal representative (e.g., an
PERSONAL executor, an administrator, or a conservator) to administer the
REPRESENTATIVE estate under the Independent Administration of Estates Act with full
authority, limited authority, or no authority without court supervision
to perform any of the following:
• Sell or exchange real property.
• Grant an option to purchase real property.
• Borrow money with the loan secured by an encumbrance upon
the real property.
RESPONSIBILITIES Every administrator or executor of the estate of a deceased
OF employer shall send a written notice of the following to the
ADMINISTRATOR Employment Development Department (EDD) within 30 days after
OR EXECUTOR assuming office as required by Section 1090(a) of the CUIC:
• Name and address of the employer.
• Name and address of the administrator or executor.
• Other information as may be required by the Director.
• The administrator or executor of the estate of a deceased
employer shall succeed to or shall acquire all the rights and
obligations of the deceased employer as set forth in
Section 1090(b) of the CUIC.
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CHAPTER 17 PROBATE
SOURCES OF The EDD obtains information regarding notices of death of
INFORMATION individuals from the following:
• Published obituaries.
• Radio.
• Television.
• Newspaper.
• Phone calls from relatives, friends, attorneys, and others.
• Notices from executors, administrators, and conservators.
• Correspondences and notes on contribution returns and
statements.
• Dishonored checks.
• Returned mail.
• Contacts made by the EDD field offices in performing audit
and collection activities.
• Notices of administration to creditors or letters of
conservatorship, testamentary, or administration sent by the
superior court where the probate was filed.
WHEN TO FILE The EDD shall file or present its claim for contributions, penalties,
THE CLAIM and interest based upon wages paid by the employer during his or
her lifetime. Section 9100(a) of the Probate Code (PC) requires a
creditor to file a claim before expiration of the later of the following
times:
• Four months after the date the letters were first issued to a
general personal representative.
• Sixty days after the date the notice of administration was
given to the creditor, if notice was given as provided in
Section 366.2 of the Code of Civil Procedure.
The Special Procedures Section, Bankruptcy Group (SPS, BG), is
responsible for the filing of claims with the superior court clerk in the
judicial district where the probate was filed. A copy of the claim
must be delivered or mailed to a personal representative.
The court may allow a claim to be filed late upon petition by a
creditor as outlined in Section 9103 of the PC.
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CHAPTER 17 PROBATE
COLLECTION Collection staff may receive probate notices and other
STAFF correspondence from the superior court or the deceased employer’s
PROCESSING agents or relatives.
Upon receipt of a notification:
• Determine whether the deceased is an employer or a
responsible person (RP) assessed under Section 1735 of the
CUIC.
• If a case exists, the assigned individual shall:
o Resolve all outstanding collection actions.
o Determine if the business is being continued.
o Determine the current management and ownership of the
business.
o Resolve all outstanding collection actions. Forward a
completedProbate Information (DE 1959) to the SPS, BG.
o Transfer the case to the SPS , BG.
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CHAPTER 18 DISCHARGE FROM ACCOUNTABILITY
DISCHARGE An Application for Discharge from Accountability (STD. 27) of an
FROM account is submitted to the State Controller’s Office (SCO) when it
ACCOUNTABILITY is no longer cost effective to pursue collection and all reasonable
means of collection have been exhausted. However, Section 12437
of the Government Code (GC) discharge does not release any
person from the payment of any tax, license, fee, or other money
that is due and owing to the Notices of State Tax Lien and remain
enforceable until they expire. The Employment Development
Department (EDD) continues to submit names of individuals and
responsible persons for offsets.
The EDD cannot discharge amounts due from public entities,
special districts, financial institutions or entities that receive public
funds.
APPLICATION The Division Support Section, Organizational Effectiveness Group,
FOR DISCHARGE (DSS, OEG) prepares the STD. 27 and certifies that the EDD has
FROM completed all of the collection actions as prescribed in
ACCOUNTABILITY Section 8776.6 of the State Administrative Manual (SAM). Separate
applications must be completed for amounts less than $10,000 and
amounts of $10,000 or more. DSS, OEG submits the STD. 27 to
the Financial Reporting Group (FRG) who will send the application
to the SCO. Discharges for over $10,000 require additional review.
Approved applications for debts exceeding $10,000 are forwarded
to the Attorney General's (AG) Office for a second review. If
approved by the AG's Office, these applications are forwarded to
the California Victim Compensation and Government Claims Board
(VCGCB) for final approval.
Section 12435 of the GC mandates that SCO shall audit the
applications and shall recommend the VCGCB to approve an order
discharging the applicant (EDD) from further accountability for
collection.
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CHAPTER 18 DISCHARGE FROM ACCOUNTABILITY
AUTHORIZATION
TO FOREGO SECTION DESCRIPTION
COLLECTION OF
STATE DEBT
12433 of the GC Any state agency or employee required to
collect any state taxes, licenses, fees, or money
owing to the state for any reason that is due and
payable may be discharged by the Controller
from accountability for the collection of the
taxes, licenses, fees, or money if the debt is
uncollectible or the amount of the debt does not
justify the cost of its collection.
See Section 8776.6 of the SAM.
12434 of the GC The application for a discharge shall be filed with
SCO.
12435 of the GC The SCO shall audit the applications. The SCO
shall discharge the applicant from further
accountability for collection and authorize the
applicant to close its book on that item.
12436 of the GC The Controller may discharge from
accountability a state agency for accounts that
do not exceed the amount specified in
subdivision (e) of Section 12435 and thereby
authorize the closing of the agency’s books in
regard to that item.
12437 of the GC A discharge generally does not release any
person from the payment of any tax, license, fee,
or other money that is due and owing to the
state.
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CHAPTER 18 DISCHARGE FROM ACCOUNTABILITY
AUTHORIZATION
TO FOREGO SECTION DESCRIPTION
COLLECTION OF
STATE DEBT
12438 of the GC A state agency is not required to collect taxes,
(cont’d.)
licenses, fees, or money owing to the state for
any reason if the amount to be collected is five
hundred dollars ($500) or less. Nothing
contained in this section shall be construed as
releasing any person from the payment of any
money due the state.
116.221 of the The small claims court, in general, shall have
Code of Civil jurisdiction if the amount of the demand does
Procedures not exceed $10,000.
8776.6 of the If all reasonable collection procedures do not
SAM result in payment, departments may request
discharge from accountability on uncollectable
amounts from private entities.
Departments will file a STD. 27 with SCO.
Applications for relief of accountability of
uncollectable amounts of more than $10,000 will
be filed separately from applications for
amounts of less than $10,000.
The STD. 27 requires, in detail, the collection
efforts made and circumstances warranting
discharge.
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