by Fresh Start Tax | Nov 21, 2017 | Tax Help
EDD Employment Tax Audit Experts and Specialists, Stop the Worry NOW! 1-866-700-1040 Since 1982 We Know the System No Cost Consults
As a former IRS agent and teaching instructor I can tell you to never go in unrepresented to any government agency during any employment, corporate, payroll or income tax audit.
The California Employment Tax Audit, EDD
The Internal Revenue Service and the state of California have the right to audit companies that have employees. One of the things an experienced professional firm can do is to limit the exposure during in employment tax audit.
Many times the government employee conducting the audit may expand the audit to do a full-scale audit on all business activities.
The representatives that come out to do employment tax audits are specialist in their area and had been specially trained for badges of fraud and other issues, I know is I was one of those persons when I work for the federal government.
Many different things can trigger a California employment tax audit.
Some of the events that may trigger a tax audit:
1. Sometimes matching forms do not make sense,
2. Year end reports with other government agencies do not match up,
3. Sometimes a scorned employee,
4. Many times a hurt spouse can start any investigation,
5. Businesses and corporations may face an audit due to random chance or because their time for an audit has come.
As a former IRS agent and teaching instructor many things can kick out these audits. Most of the time red flags do occur.
Caution: Anyone undergoing an audit, make sure you are absolutely truthful to make sure this audit stays on a civil basis and does not turn to criminal. Always be truthful during your EDD for IRS payroll tax audit.
Mis-Classification is common during these audits.
With that said what are common tests of employees vs employer.
These are the famous common law tests.
1. Instructions:
Employees.
An employee is required to comply with instruction about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to give instructions.
Independent Contractor (“IC’s”). IC’s determine on their own on how they will proceed in accomplishing an assigned task. An IC is under no obligation to comply with instructions as to how to perform an assigned task, only that they accomplish it.
2. Training:
Employees.
An employee is trained to perform services in a particular manner.
Independent Contractors. IC’s ordinarily use their own methods to accomplish the required task and receive very little or no training from the party which retains their services.
3. Integration:
Employees.
An employee provides services that are an integral part of the employer’s operations.
Independent Contractors. IC’s services are generally not part of the core operations of the engaging party.
4. Services rendered personally:
Employees.
Employees are personally required to perform their services and may not assign another individual to perform their tasks.
Independent Contractors. IC’s may or may not personally render the required services, as they are permitted to engage others to do the work.
5. Hiring assistant:
Employees.
An employee works for an employer that directly hires, supervises, and compensates the individuals performing the work. Employees do not hire assistants to help perform the required task.
Independent Contractors. An IC may hire, supervise, and pay assistants under a contract that requires the former to provide materials and/or labor, and is responsible for the contracted results.
6. Continuing relationship:
Employees.
An employee has a continuing relationship with an employer on what is hoped to be a long-term basis.
Independent Contractors. IC’s typically enter temporary relationships and move from assignment to assignment.
7. Set hours of work:
Employees.
An employee has set hours of work established by an employer.
Independent Contractors. IC’s are masters of their own time; they set their own hours of work.
8. Full-time work:
Employees.
An employee normally works full-time for an employer.
Independent Contractors. IC’s work when and for whom they choose; and may be engaged by more than one entity at one time.
9. Work done on premises:
Employees.
An employee works on the premises of an employer, or works at a location chosen by the employer.
Independent Contractors. IC’s typically work off the engaging firm’s premises, unless the particular tasks need to be done at the engaging firm’s place of business.
10. Order or sequence set:
Employees.
An employee performs services in the sequence set by an employer, a manifestation of the employer’s direction and control over the method used to perform the work.
Independent Contractors. IC’s decide the method to be used in performing the required task, including the sequence of activities.
11. Reports:
Employees.
An employee submits interim reports to an employer to keep the employer informed as to the method being used to perform the work. This reporting obligation tends to demonstrate that the individual is subject to direction and control.
Independent Contractors. IC’s generally do not submit interim reports; they are only responsible for reporting completion of the work.
12. Payments:
Employees.
An employee is paid by the hour, week, or month.
Independent Contractors. IC’s are normally compensated by a flat rate for a project or a manner different from the engaging firm pays its employees. However, if the general practice in certain trades and professions is to pay on the basis of a unit of time, the method of payment will not be given great weight.
13. Expenses:
Employees.
An employee’s business and travel expenses are paid for by an employer.
Independent Contractors. Typically, IC’s pay their own business and traveling expenses. However, it is customary in certain trades and professions for IC’s to bill their clients for disbursements such as travel, photocopying and other incidental expenses. Payment of disbursements in addition to the fee for services, does not create an employment relationship.
14. Tools and materials:
Employees.
An employer furnishes employees the necessary tools, material, and other equipment needed to complete the task.
Independent Contractors. IC’s generally furnish their own tools and materials.
15. Investment:
Employees.
Employees generally have no investment in equipment or facilities. This demonstrates a lack of interdependence from the hiring firm and is additional indication of an employer-employee relationship.
Independent Contractors. IC’s have an investment in the equipment and facilities used in their line of work.
16. Profit or loss:
Employees.
Employees are typically paid for their time and labor and are not responsible for ensuring that their revenue exceeds their expenses.
Independent Contractors. For an IC, a given assignment presents an opportunity for a profit (revenue exceeding expenses) or a loss (expenses exceeding revenues). In other words, there is risk and reward associated with being an IC.
17. Works for more than one person or firm:
Employees.
While an employee can have more than one job at a time, employers can demand exclusive employment and prohibit an employee from working for another employer.
Independent Contractors. IC’s usually offer their services to multiple, unrelated entities at the same time. Having more than one client or customer at a particular time is persuasive evidence of IC status.
18. Offers services to general public:
Employees.
Employees offer their services only to their employers.
Independent Contractors. IC’s offer their services to the general public.
19. Right to fire:
Employees.
An employee can be terminated by an employer.
Independent Contractors. An IC can be only terminated in accordance with terms of the agreement of engagement. For example, an IC who fails to perform in accordance with the contract terms is in breach, which may be a basis for termination.
20. Right to quit:
Employees.
An employee can quit his or her job at any time without incurring liability for uncompleted tasks or assignments.
Independent Contractors. An IC usually agrees to perform a specific task and is responsible for its satisfactory completion, or is legally obligated to take responsibility for the damages caused by their failure to complete the job. Right to quit.
California Employment Development Department.
What are some of the most common mistakes found in a tax audit????
A. Mis- Classification of workers.
Some companies want to save on employee costs by classifying employees as independent contractors. is much easier for a company to pay via a 1099 to avoid many taxes versus putting them as full-time employees.
B. Excessive use of cash in the business.
Some industries rely more so on cash transactions than others. However the IRS and EDD recognize that cash is more prone to abuse, concealment, and other wrongdoing. Thus, businesses that rely heavily on cash, even legitimately, face higher odds of an employment tax audit. There various sources in ways that IRS can find out if a company is relying heavily on cash.
C. Use of business funds to cover personal expenses.
CEO’s, managers, and company presidents who lose sight of the line that divides personal assets and expenses from business assets and expenses. For instance, individuals who embezzle /steal funds from their company or who characterize personal trips as business retreats can face serious charges.
D. Failure to keep sufficient/adequate business records.
Employment and tax records must be kept by businesses for a certain number of years. If your company is audited, you will need to rely on these records to show your compliance with all employment tax obligations.
California Employment Development Division (EDD) Handles Employment tax and Payroll Tax
While the IRS handles the administration of the federal employment tax obligations, the Employment Development Division handles the state-based employment tax obligation in California.
The IRS & EDD typically requires an in-person meeting where they will take a tour of the business facilities. They very much act like an IRS auditor revenue agent during this process. Good agents make a full examination of the business, they keep their eyes out for everything.
Oftentimes, the IRS or EDD agent will conduct an informal interview with the individual giving the tour including the individual’s role in the company, the business the company is engaged in, and the markets and places where the company’s goods and services are sold. Sometimes they may want to ask employees questions.
A TAX TIP. As a former IRS agent make sure you walk with them and let your representative answer the questions. You do not want to fall into a government trap question.
What Records are required for a California or Federal Employment Tax Audit?
A California or IRS employment tax audit will typically begin with an in person tour and interview of the facility by the auditing agent. Auditors have great flexibility during their audits.
The audit process truly begins at this stage as the auditor is detailed oriented and will take note of the scope and scale of your operations. Each auditor can work your case differently.
EDD and IRS may ask to see one year of records or they may expand the investigation of three years and IRS can expand it to a fourth-year depending on the omissions that they find if there are any. Each government agency has their own set of criteria.
California does provide for a list of minimum required business records as set forth by Sections 1085 and 1092 of the CUIC.
These records include but are not limited too :
• Annual financial statements,
• Ledgers,
• Check registers,
• Check stubs,
• Bank statements,
• Federal and state income tax returns,
Note: They may also asked for all electronic records pertinent to the above. This is not a comprehensive list.
The EDD may also request additional records for payroll purposes including state and federal tax forms such as W-2s, W-3’s ,W-4s, DE-9s, DE-7s, DE-4 and other documents.
Having former IRS agents and auditors on staff, we know exactly what government agencies look for during the time of their audit.
We are full service tax firm that can handle any IRS or state tax problem.
Being Audited EDD California + Affordable IRS & EDD Payroll Experts + Free Consult
1-866-700-1040
by Fresh Start Tax | Nov 21, 2017 | Tax Help
EDD Employment Tax Audit Experts and Specialists, Stop the Worry NOW! 1-866-700-1040 Since 1982 We Know the System
As a former IRS agent and teaching instructor I can tell you to never go in unrepresented to any government agency during any employment, corporate or income tax audit.
The California Employment Tax Audit
The Internal Revenue Service and the state of California have the right to audit companies that have employees. One of the things an experienced professional firm can do is to limit the exposure during in employment tax audit.
Many times the government employee conducting the audit may expand the audit to do a full-scale audit on all business activities.
The representatives that come out to do employment tax audits are specialist in their area and had been specially trained for badges of fraud and other issues, I know is I was one of those persons when I work for the federal government.
Many different things can trigger a California employment tax audit.
Some of the events that may trigger a tax audit:
1. Sometimes matching forms do not make sense,
2. Year end reports with other government agencies do not match up,
3. Sometimes a scorned employee,
4. Many times a hurt spouse can start any investigation,
5. Businesses and corporations may face an audit due to random chance or because their time for an audit has come.
As a former IRS agent and teaching instructor many things can kick out these audits. Most of the time red flags do occur.
Caution: Anyone undergoing an audit, make sure you are absolutely truthful to make sure this audit stays on a civil basis and does not turn to criminal. Always be truthful during your EDD for IRS payroll tax audit.
Mis-Classification is common during these audits.
With that said what are common tests of employees vs employer. These are the famous common law tests.
1. Instructions:
Employees.
An employee is required to comply with instruction about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to give instructions.
Independent Contractor (“IC’s”). IC’s determine on their own on how they will proceed in accomplishing an assigned task. An IC is under no obligation to comply with instructions as to how to perform an assigned task, only that they accomplish it.
2. Training:
Employees.
An employee is trained to perform services in a particular manner.
Independent Contractors. IC’s ordinarily use their own methods to accomplish the required task and receive very little or no training from the party which retains their services.
3. Integration:
Employees.
An employee provides services that are an integral part of the employer’s operations.
Independent Contractors. IC’s services are generally not part of the core operations of the engaging party.
4. Services rendered personally:
Employees.
Employees are personally required to perform their services and may not assign another individual to perform their tasks.
Independent Contractors. IC’s may or may not personally render the required services, as they are permitted to engage others to do the work.
5. Hiring assistant:
Employees.
An employee works for an employer that directly hires, supervises, and compensates the individuals performing the work. Employees do not hire assistants to help perform the required task.
Independent Contractors. An IC may hire, supervise, and pay assistants under a contract that requires the former to provide materials and/or labor, and is responsible for the contracted results.
6. Continuing relationship:
Employees.
An employee has a continuing relationship with an employer on what is hoped to be a long-term basis.
Independent Contractors. IC’s typically enter temporary relationships and move from assignment to assignment.
7. Set hours of work:
Employees.
An employee has set hours of work established by an employer.
Independent Contractors. IC’s are masters of their own time; they set their own hours of work.
8. Full-time work:
Employees.
An employee normally works full-time for an employer.
Independent Contractors. IC’s work when and for whom they choose; and may be engaged by more than one entity at one time.
9. Work done on premises:
Employees.
An employee works on the premises of an employer, or works at a location chosen by the employer.
Independent Contractors. IC’s typically work off the engaging firm’s premises, unless the particular tasks need to be done at the engaging firm’s place of business.
10. Order or sequence set:
Employees.
An employee performs services in the sequence set by an employer, a manifestation of the employer’s direction and control over the method used to perform the work.
Independent Contractors. IC’s decide the method to be used in performing the required task, including the sequence of activities.
11. Reports:
Employees.
An employee submits interim reports to an employer to keep the employer informed as to the method being used to perform the work. This reporting obligation tends to demonstrate that the individual is subject to direction and control.
Independent Contractors. IC’s generally do not submit interim reports; they are only responsible for reporting completion of the work.
12. Payments:
Employees.
An employee is paid by the hour, week, or month.
Independent Contractors. IC’s are normally compensated by a flat rate for a project or a manner different from the engaging firm pays its employees. However, if the general practice in certain trades and professions is to pay on the basis of a unit of time, the method of payment will not be given great weight.
13. Expenses:
Employees.
An employee’s business and travel expenses are paid for by an employer.
Independent Contractors. Typically, IC’s pay their own business and traveling expenses. However, it is customary in certain trades and professions for IC’s to bill their clients for disbursements such as travel, photocopying and other incidental expenses. Payment of disbursements in addition to the fee for services, does not create an employment relationship.
14. Tools and materials:
Employees.
An employer furnishes employees the necessary tools, material, and other equipment needed to complete the task.
Independent Contractors. IC’s generally furnish their own tools and materials.
15. Investment:
Employees.
Employees generally have no investment in equipment or facilities. This demonstrates a lack of interdependence from the hiring firm and is additional indication of an employer-employee relationship.
Independent Contractors. IC’s have an investment in the equipment and facilities used in their line of work.
16. Profit or loss:
Employees.
Employees are typically paid for their time and labor and are not responsible for ensuring that their revenue exceeds their expenses.
Independent Contractors. For an IC, a given assignment presents an opportunity for a profit (revenue exceeding expenses) or a loss (expenses exceeding revenues). In other words, there is risk and reward associated with being an IC.
17. Works for more than one person or firm:
Employees.
While an employee can have more than one job at a time, employers can demand exclusive employment and prohibit an employee from working for another employer.
Independent Contractors. IC’s usually offer their services to multiple, unrelated entities at the same time. Having more than one client or customer at a particular time is persuasive evidence of IC status.
18. Offers services to general public:
Employees.
Employees offer their services only to their employers.
Independent Contractors. IC’s offer their services to the general public.
19. Right to fire:
Employees.
An employee can be terminated by an employer.
Independent Contractors. An IC can be only terminated in accordance with terms of the agreement of engagement. For example, an IC who fails to perform in accordance with the contract terms is in breach, which may be a basis for termination.
20. Right to quit:
Employees.
An employee can quit his or her job at any time without incurring liability for uncompleted tasks or assignments.
Independent Contractors. An IC usually agrees to perform a specific task and is responsible for its satisfactory completion, or is legally obligated to take responsibility for the damages caused by their failure to complete the job. Right to quit.
California Employment Development Department.
What are some of the most common mistakes found in a tax audit????
A. Mis- Classification of workers.
Some companies want to save on employee costs by classifying employees as independent contractors. is much easier for a company to pay via a 1099 to avoid many taxes versus putting them as full-time employees.
B. Excessive use of cash in the business.
Some industries rely more so on cash transactions than others. However the IRS and EDD recognize that cash is more prone to abuse, concealment, and other wrongdoing. Thus, businesses that rely heavily on cash, even legitimately, face higher odds of an employment tax audit. There various sources in ways that IRS can find out if a company is relying heavily on cash.
C. Use of business funds to cover personal expenses.
CEO’s, managers, and company presidents who lose sight of the line that divides personal assets and expenses from business assets and expenses. For instance, individuals who embezzle /steal funds from their company or who characterize personal trips as business retreats can face serious charges.
D. Failure to keep sufficient/adequate business records.
Employment and tax records must be kept by businesses for a certain number of years. If your company is audited, you will need to rely on these records to show your compliance with all employment tax obligations.
California Employment Development Division (EDD) Handles Employment tax and Payroll Tax
While the IRS handles the administration of the federal employment tax obligations, the Employment Development Division handles the state-based employment tax obligation in California.
The IRS & EDD typically requires an in-person meeting where they will take a tour of the business facilities. They very much act like an IRS auditor revenue agent during this process. Good agents make a full examination of the business, they keep their eyes out for everything.
Oftentimes, the IRS or EDD agent will conduct an informal interview with the individual giving the tour including the individual’s role in the company, the business the company is engaged in, and the markets and places where the company’s goods and services are sold. Sometimes they may want to ask employees questions.
A TAX TIP. As a former IRS agent make sure you walk with them and let your representative answer the questions. You do not want to fall into a government trap question.
What Records are required for a California or Federal Employment Tax Audit?
A California or IRS employment tax audit will typically begin with an in person tour and interview of the facility by the auditing agent. Auditors have great flexibility during their audits.
The audit process truly begins at this stage as the auditor is detailed oriented and will take note of the scope and scale of your operations. Each auditor can work your case differently.
EDD and IRS may ask to see one year of records or they may expand the investigation of three years and IRS can expand it to a fourth-year depending on the omissions that they find if there are any. Each government agency has their own set of criteria.
California does provide for a list of minimum required business records as set forth by Sections 1085 and 1092 of the CUIC.
These records include but are not limited too :
• Annual financial statements,
• Ledgers,
• Check registers,
• Check stubs,
• Bank statements,
• Federal and state income tax returns,
Note: They may also asked for all electronic records pertinent to the above. This is not a comprehensive list.
The EDD may also request additional records for payroll purposes including state and federal tax forms such as W-2s, W-3’s ,W-4s, DE-9s, DE-7s, DE-4 and other documents.
Having former IRS agents and auditors on staff, we know exactly what government agencies look for during the time of their audit.
EDD Tax Audits + Los Angeles Payroll Tax Help + Affordable Tax Experts
by Fresh Start Tax | Nov 21, 2017 | Tax Help
California +EDD Employment Tax Audit Experts and Specialists, Stop the Worry NOW! 1-866-700-1040 Since 1982
As a former IRS agent and teaching instructor I can tell you to never go in unrepresented to any government agency during any employment, corporate or income tax audit.
The California Employment Tax Audit
The Internal Revenue Service and the state of California have the right to audit companies that have employees. One of the things an experienced professional firm can do is to limit the exposure during in employment tax audit.
Many times the government employee conducting the audit may expand the audit to do a full-scale audit on all business activities.
The representatives that come out to do employment tax audits are specialist in their area and had been specially trained for badges of fraud and other issues, I know is I was one of those persons when I work for the federal government.
Many different things can trigger a California employment tax audit.
Some of the events that may trigger a tax audit:
1. Sometimes matching forms do not make sense,
2. Year end reports with other government agencies do not match up,
3. Sometimes a scorned employee,
4. Many times a hurt spouse can start any investigation,
5. Businesses and corporations may face an audit due to random chance or because their time for an audit has come.
As a former IRS agent and teaching instructor many things can kick out these audits. Most of the time red flags do occur.
Caution: Anyone undergoing an audit, make sure you are absolutely truthful to make sure this audit stays on a civil basis and does not turn to criminal. Always be truthful during your EDD for IRS payroll tax audit.
Mis-Classification is common during these audits.
With that said what are common tests of employees vs employer. These are the famous common law tests.
1. Instructions:
Employees.
An employee is required to comply with instruction about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to give instructions.
Independent Contractor (“IC’s”). IC’s determine on their own on how they will proceed in accomplishing an assigned task. An IC is under no obligation to comply with instructions as to how to perform an assigned task, only that they accomplish it.
2. Training:
Employees.
An employee is trained to perform services in a particular manner.
Independent Contractors. IC’s ordinarily use their own methods to accomplish the required task and receive very little or no training from the party which retains their services.
3. Integration:
Employees.
An employee provides services that are an integral part of the employer’s operations.
Independent Contractors. IC’s services are generally not part of the core operations of the engaging party.
4. Services rendered personally:
Employees.
Employees are personally required to perform their services and may not assign another individual to perform their tasks.
Independent Contractors. IC’s may or may not personally render the required services, as they are permitted to engage others to do the work.
5. Hiring assistant:
Employees.
An employee works for an employer that directly hires, supervises, and compensates the individuals performing the work. Employees do not hire assistants to help perform the required task.
Independent Contractors. An IC may hire, supervise, and pay assistants under a contract that requires the former to provide materials and/or labor, and is responsible for the contracted results.
6. Continuing relationship:
Employees.
An employee has a continuing relationship with an employer on what is hoped to be a long-term basis.
Independent Contractors. IC’s typically enter temporary relationships and move from assignment to assignment.
7. Set hours of work:
Employees.
An employee has set hours of work established by an employer.
Independent Contractors. IC’s are masters of their own time; they set their own hours of work.
8. Full-time work:
Employees.
An employee normally works full-time for an employer.
Independent Contractors. IC’s work when and for whom they choose; and may be engaged by more than one entity at one time.
9. Work done on premises:
Employees.
An employee works on the premises of an employer, or works at a location chosen by the employer.
Independent Contractors. IC’s typically work off the engaging firm’s premises, unless the particular tasks need to be done at the engaging firm’s place of business.
10. Order or sequence set:
Employees.
An employee performs services in the sequence set by an employer, a manifestation of the employer’s direction and control over the method used to perform the work.
Independent Contractors. IC’s decide the method to be used in performing the required task, including the sequence of activities.
11. Reports:
Employees.
An employee submits interim reports to an employer to keep the employer informed as to the method being used to perform the work. This reporting obligation tends to demonstrate that the individual is subject to direction and control.
Independent Contractors. IC’s generally do not submit interim reports; they are only responsible for reporting completion of the work.
12. Payments:
Employees.
An employee is paid by the hour, week, or month.
Independent Contractors. IC’s are normally compensated by a flat rate for a project or a manner different from the engaging firm pays its employees. However, if the general practice in certain trades and professions is to pay on the basis of a unit of time, the method of payment will not be given great weight.
13. Expenses:
Employees.
An employee’s business and travel expenses are paid for by an employer.
Independent Contractors. Typically, IC’s pay their own business and traveling expenses. However, it is customary in certain trades and professions for IC’s to bill their clients for disbursements such as travel, photocopying and other incidental expenses. Payment of disbursements in addition to the fee for services, does not create an employment relationship.
14. Tools and materials:
Employees.
An employer furnishes employees the necessary tools, material, and other equipment needed to complete the task.
Independent Contractors. IC’s generally furnish their own tools and materials.
15. Investment:
Employees.
Employees generally have no investment in equipment or facilities. This demonstrates a lack of interdependence from the hiring firm and is additional indication of an employer-employee relationship.
Independent Contractors. IC’s have an investment in the equipment and facilities used in their line of work.
16. Profit or loss:
Employees.
Employees are typically paid for their time and labor and are not responsible for ensuring that their revenue exceeds their expenses.
Independent Contractors. For an IC, a given assignment presents an opportunity for a profit (revenue exceeding expenses) or a loss (expenses exceeding revenues). In other words, there is risk and reward associated with being an IC.
17. Works for more than one person or firm:
Employees.
While an employee can have more than one job at a time, employers can demand exclusive employment and prohibit an employee from working for another employer.
Independent Contractors. IC’s usually offer their services to multiple, unrelated entities at the same time. Having more than one client or customer at a particular time is persuasive evidence of IC status.
18. Offers services to general public:
Employees.
Employees offer their services only to their employers.
Independent Contractors. IC’s offer their services to the general public.
19. Right to fire:
Employees.
An employee can be terminated by an employer.
Independent Contractors. An IC can be only terminated in accordance with terms of the agreement of engagement. For example, an IC who fails to perform in accordance with the contract terms is in breach, which may be a basis for termination.
20. Right to quit:
Employees.
An employee can quit his or her job at any time without incurring liability for uncompleted tasks or assignments.
Independent Contractors. An IC usually agrees to perform a specific task and is responsible for its satisfactory completion, or is legally obligated to take responsibility for the damages caused by their failure to complete the job. Right to quit.
California Employment Development Department.
What are some of the most common mistakes found in a tax audit????
A. Mis- Classification of workers.
Some companies want to save on employee costs by classifying employees as independent contractors. is much easier for a company to pay via a 1099 to avoid many taxes versus putting them as full-time employees.
B. Excessive use of cash in the business.
Some industries rely more so on cash transactions than others. However the IRS and EDD recognize that cash is more prone to abuse, concealment, and other wrongdoing. Thus, businesses that rely heavily on cash, even legitimately, face higher odds of an employment tax audit. There various sources in ways that IRS can find out if a company is relying heavily on cash.
C. Use of business funds to cover personal expenses.
CEO’s, managers, and company presidents who lose sight of the line that divides personal assets and expenses from business assets and expenses. For instance, individuals who embezzle /steal funds from their company or who characterize personal trips as business retreats can face serious charges.
D. Failure to keep sufficient/adequate business records.
Employment and tax records must be kept by businesses for a certain number of years. If your company is audited, you will need to rely on these records to show your compliance with all employment tax obligations.
California Employment Development Division (EDD) Handles Employment tax and Payroll Tax
While the IRS handles the administration of the federal employment tax obligations, the Employment Development Division handles the state-based employment tax obligation in California.
The IRS & EDD typically requires an in-person meeting where they will take a tour of the business facilities. They very much act like an IRS auditor revenue agent during this process. Good agents make a full examination of the business, they keep their eyes out for everything.
Oftentimes, the IRS or EDD agent will conduct an informal interview with the individual giving the tour including the individual’s role in the company, the business the company is engaged in, and the markets and places where the company’s goods and services are sold. Sometimes they may want to ask employees questions.
A TAX TIP. As a former IRS agent make sure you walk with them and let your representative answer the questions. You do not want to fall into a government trap question.
What Records are required for a California or Federal Employment Tax Audit?
A California or IRS employment tax audit will typically begin with an in person tour and interview of the facility by the auditing agent. Auditors have great flexibility during their audits.
The audit process truly begins at this stage as the auditor is detailed oriented and will take note of the scope and scale of your operations. Each auditor can work your case differently.
EDD and IRS may ask to see one year of records or they may expand the investigation of three years and IRS can expand it to a fourth-year depending on the omissions that they find if there are any. Each government agency has their own set of criteria.
California does provide for a list of minimum required business records as set forth by Sections 1085 and 1092 of the CUIC.
These records include but are not limited too :
• Annual financial statements,
• Ledgers,
• Check registers,
• Check stubs,
• Bank statements,
• Federal and state income tax returns,
Note: They may also asked for all electronic records pertinent to the above. This is not a comprehensive list.
The EDD may also request additional records for payroll purposes including state and federal tax forms such as W-2s, W-3’s ,W-4s, DE-9s, DE-7s, DE-4 and other documents.
Having former IRS agents and auditors on staff, we know exactly what government agencies look for during the time of their audit.
EDD Tax Audit + What You Need to Know + Affordable Experts+ 1-866-700-1040
by Fresh Start Tax | Nov 21, 2017 | Tax Help
California +EDD Employment Tax Audit Experts and Specialists, Stop the Worry! 1-866-700-1040 <><
Proverbs 12:15
The way of a fool is right in his own eyes, But a wise man is he who listens to counsel.
Proverbs 11:14
Where there is no guidance the people fall, But in abundance of counselors there is victory.
The California Employment Tax Audit
The Internal Revenue Service and the state of California have the right to audit companies that have employees. One of the things an experienced professional firm can do is to limit the exposure during in employment tax audit.
Many times the government employee conducting the audit may expand the audit to do a full-scale audit on all business activities.
The representatives that come out to do employment tax audits are specialist in their area and had been specially trained for badges of fraud and other issues, I know is I was one of those persons when I work for the federal government.
Many different things can trigger a California employment tax audit.
Some of the events that may trigger a tax audit:
1. Sometimes matching forms do not make sense,
2. Year end reports with other government agencies do not match up,
3. Sometimes a scorned employee,
4. Many times a hurt spouse can start any investigation,
5. Businesses and corporations may face an audit due to random chance or because their time for an audit has come.
As a former IRS agent and teaching instructor many things can kick out these audits. Most of the time red flags do occur.
Caution: Anyone undergoing an audit, make sure you are absolutely truthful to make sure this audit stays on a civil basis and does not turn to criminal. Always be truthful during your EDD for IRS payroll tax audit.
Classification is common during these audits.
With that said what are common tests of employees vs employer. These are the famous common law tests.
1. Instructions:
Employees.
An employee is required to comply with instruction about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to give instructions.
Independent Contractor (“IC’s”). IC’s determine on their own on how they will proceed in accomplishing an assigned task. An IC is under no obligation to comply with instructions as to how to perform an assigned task, only that they accomplish it.
2. Training:
Employees.
An employee is trained to perform services in a particular manner.
Independent Contractors. IC’s ordinarily use their own methods to accomplish the required task and receive very little or no training from the party which retains their services.
3. Integration:
Employees.
An employee provides services that are an integral part of the employer’s operations.
Independent Contractors. IC’s services are generally not part of the core operations of the engaging party.
4. Services rendered personally:
Employees.
Employees are personally required to perform their services and may not assign another individual to perform their tasks.
Independent Contractors. IC’s may or may not personally render the required services, as they are permitted to engage others to do the work.
5. Hiring assistant:
Employees.
An employee works for an employer that directly hires, supervises, and compensates the individuals performing the work. Employees do not hire assistants to help perform the required task.
Independent Contractors. An IC may hire, supervise, and pay assistants under a contract that requires the former to provide materials and/or labor, and is responsible for the contracted results.
6. Continuing relationship:
Employees.
An employee has a continuing relationship with an employer on what is hoped to be a long-term basis.
Independent Contractors. IC’s typically enter temporary relationships and move from assignment to assignment.
7. Set hours of work:
Employees.
An employee has set hours of work established by an employer.
Independent Contractors. IC’s are masters of their own time; they set their own hours of work.
8. Full-time work:
Employees.
An employee normally works full-time for an employer.
Independent Contractors. IC’s work when and for whom they choose; and may be engaged by more than one entity at one time.
9. Work done on premises:
Employees.
An employee works on the premises of an employer, or works at a location chosen by the employer.
Independent Contractors. IC’s typically work off the engaging firm’s premises, unless the particular tasks need to be done at the engaging firm’s place of business.
10. Order or sequence set:
Employees.
An employee performs services in the sequence set by an employer, a manifestation of the employer’s direction and control over the method used to perform the work.
Independent Contractors. IC’s decide the method to be used in performing the required task, including the sequence of activities.
11. Reports:
Employees.
An employee submits interim reports to an employer to keep the employer informed as to the method being used to perform the work. This reporting obligation tends to demonstrate that the individual is subject to direction and control.
Independent Contractors. IC’s generally do not submit interim reports; they are only responsible for reporting completion of the work.
12. Payments:
Employees.
An employee is paid by the hour, week, or month.
Independent Contractors. IC’s are normally compensated by a flat rate for a project or a manner different from the engaging firm pays its employees. However, if the general practice in certain trades and professions is to pay on the basis of a unit of time, the method of payment will not be given great weight.
13. Expenses:
Employees.
An employee’s business and travel expenses are paid for by an employer.
Independent Contractors. Typically, IC’s pay their own business and traveling expenses. However, it is customary in certain trades and professions for IC’s to bill their clients for disbursements such as travel, photocopying and other incidental expenses. Payment of disbursements in addition to the fee for services, does not create an employment relationship.
14. Tools and materials:
Employees.
An employer furnishes employees the necessary tools, material, and other equipment needed to complete the task.
Independent Contractors. IC’s generally furnish their own tools and materials.
15. Investment:
Employees.
Employees generally have no investment in equipment or facilities. This demonstrates a lack of interdependence from the hiring firm and is additional indication of an employer-employee relationship.
Independent Contractors. IC’s have an investment in the equipment and facilities used in their line of work.
16. Profit or loss:
Employees.
Employees are typically paid for their time and labor and are not responsible for ensuring that their revenue exceeds their expenses.
Independent Contractors. For an IC, a given assignment presents an opportunity for a profit (revenue exceeding expenses) or a loss (expenses exceeding revenues). In other words, there is risk and reward associated with being an IC.
17. Works for more than one person or firm:
Employees.
While an employee can have more than one job at a time, employers can demand exclusive employment and prohibit an employee from working for another employer.
Independent Contractors. IC’s usually offer their services to multiple, unrelated entities at the same time. Having more than one client or customer at a particular time is persuasive evidence of IC status.
18. Offers services to general public:
Employees.
Employees offer their services only to their employers.
Independent Contractors. IC’s offer their services to the general public.
19. Right to fire:
Employees.
An employee can be terminated by an employer.
Independent Contractors. An IC can be only terminated in accordance with terms of the agreement of engagement. For example, an IC who fails to perform in accordance with the contract terms is in breach, which may be a basis for termination.
20. Right to quit:
Employees.
An employee can quit his or her job at any time without incurring liability for uncompleted tasks or assignments.
Independent Contractors. An IC usually agrees to perform a specific task and is responsible for its satisfactory completion, or is legally obligated to take responsibility for the damages caused by their failure to complete the job. Right to quit.
California Employment Development Department.
What are some of the most common mistakes found in a tax audit????
A. Mis- Classification of workers.
Some companies want to save on employee costs by classifying employees as independent contractors. is much easier for a company to pay via a 1099 to avoid many taxes versus putting them as full-time employees.
B. Excessive use of cash in the business.
Some industries rely more so on cash transactions than others. However the IRS and EDD recognize that cash is more prone to abuse, concealment, and other wrongdoing. Thus, businesses that rely heavily on cash, even legitimately, face higher odds of an employment tax audit. There various sources in ways that IRS can find out if a company is relying heavily on cash.
C. Use of business funds to cover personal expenses.
CEO’s, managers, and company presidents who lose sight of the line that divides personal assets and expenses from business assets and expenses. For instance, individuals who embezzle funds from their company or who characterize personal trips as business retreats can face serious charges.
D. Failure to keep sufficient/adequate business records.
Employment and tax records must be kept by businesses for a certain number of years. If your company is audited, you will need to rely on these records to show your compliance with all employment tax obligations.
California Employment Development Division (EDD) Handles Employment tax and Payroll Tax
While the IRS handles the administration of the federal employment tax obligations, the Employment Development Division handles the state-based employment tax obligation in California.
The IRS & EDD typically requires an in-person meeting where they will take a tour of the business facilities. They very much act like an IRS auditor revenue agent during this process. Good agents make a full examination of the business, they keep their eyes out for everything.
Oftentimes, the IRS or EDD agent will conduct an informal interview with the individual giving the tour including the individual’s role in the company, the business the company is engaged in, and the markets and places where the company’s goods and services are sold. Sometimes they may want to ask employees questions.
A TAX TIP. As a former IRS agent make sure you walk with them and let your representative answer the questions. You do not want to fall into a government trap question.
What Records are required for a California or Federal Employment Tax Audit?
A California or IRS employment tax audit will typically begin with an in person tour and interview of the facility by the auditing agent. Auditors have great flexibility during their audits.
The audit process truly begins at this stage as the auditor is detailed oriented and will take note of the scope and scale of your operations. Each auditor can work your case differently.
EDD and IRS may ask to see one year of records or they may expand the investigation of three years and IRS can expand it to a fourth-year depending on the omissions that they find if there are any. Each government agency has their own set of criteria.
California does provide for a list of minimum required business records as set forth by Sections 1085 and 1092 of the CUIC.
These records include but are not limited too :
• Annual financial statements,
• Ledgers,
• Check registers,
• Check stubs,
• Bank statements,
• Federal and state income tax returns,
Note: They may also asked for all electronic records pertinent to the above. This is not a comprehensive list.
The EDD may also request additional records for payroll purposes including state and federal tax forms such as W-2s, W-3’s ,W-4s, DE-9s, DE-7s, DE-4 and other documents.
Having former IRS agents and auditors on staff, we know exactly what government agencies look for during the time of their audit.
California and Federal Employment Tax Audit + Affordable Christian Tax Experts<><
by Fresh Start Tax | Nov 21, 2017 | Tax Help
California +EDD Employment Tax Audit Experts and Specialists, Stop the Worry! 1-866-700-1040
The California Employment Tax Audit
The Internal Revenue Service and the state of California have the right to audit companies that have employees. One of the things an experienced professional firm can do is to limit the exposure during in employment tax audit.
Many times the government employee conducting the audit may expand the audit to do a full-scale audit on all business activities.
The representatives that come out to do employment tax audits are specialist in their area and had been specially trained for badges of fraud and other issues, I know is I was one of those persons when I work for the federal government.
Many different things can trigger a California employment tax audit.
Some of the events that may trigger a tax audit:
1. Sometimes matching forms do not make sense,
2. Year end reports with other government agencies do not match up,
3. Sometimes a scorned employee,
4. Many times a hurt spouse can start any investigation,
5. Businesses and corporations may face an audit due to random chance or because their time for an audit has come.
As a former IRS agent and teaching instructor many things can kick out these audits. Most of the time red flags do occur.
Caution: Anyone undergoing an audit, make sure you are absolutely truthful to make sure this audit stays on a civil basis and does not turn to criminal. Always be truthful during your EDD for IRS payroll tax audit.
Classification is common during these audits.
With that said what are common tests of employees vs employer. These are the famous common law tests.
1. Instructions:
Employees.
An employee is required to comply with instruction about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to give instructions.
Independent Contractor (“IC’s”). IC’s determine on their own on how they will proceed in accomplishing an assigned task. An IC is under no obligation to comply with instructions as to how to perform an assigned task, only that they accomplish it.
2. Training:
Employees.
An employee is trained to perform services in a particular manner.
Independent Contractors. IC’s ordinarily use their own methods to accomplish the required task and receive very little or no training from the party which retains their services.
3. Integration:
Employees.
An employee provides services that are an integral part of the employer’s operations.
Independent Contractors. IC’s services are generally not part of the core operations of the engaging party.
4. Services rendered personally:
Employees.
Employees are personally required to perform their services and may not assign another individual to perform their tasks.
Independent Contractors. IC’s may or may not personally render the required services, as they are permitted to engage others to do the work.
5. Hiring assistant:
Employees.
An employee works for an employer that directly hires, supervises, and compensates the individuals performing the work. Employees do not hire assistants to help perform the required task.
Independent Contractors. An IC may hire, supervise, and pay assistants under a contract that requires the former to provide materials and/or labor, and is responsible for the contracted results.
6. Continuing relationship:
Employees.
An employee has a continuing relationship with an employer on what is hoped to be a long-term basis.
Independent Contractors. IC’s typically enter temporary relationships and move from assignment to assignment.
7. Set hours of work:
Employees.
An employee has set hours of work established by an employer.
Independent Contractors. IC’s are masters of their own time; they set their own hours of work.
8. Full-time work:
Employees.
An employee normally works full-time for an employer.
Independent Contractors. IC’s work when and for whom they choose; and may be engaged by more than one entity at one time.
9. Work done on premises:
Employees.
An employee works on the premises of an employer, or works at a location chosen by the employer.
Independent Contractors. IC’s typically work off the engaging firm’s premises, unless the particular tasks need to be done at the engaging firm’s place of business.
10. Order or sequence set:
Employees.
An employee performs services in the sequence set by an employer, a manifestation of the employer’s direction and control over the method used to perform the work.
Independent Contractors. IC’s decide the method to be used in performing the required task, including the sequence of activities.
11. Reports:
Employees.
An employee submits interim reports to an employer to keep the employer informed as to the method being used to perform the work. This reporting obligation tends to demonstrate that the individual is subject to direction and control.
Independent Contractors. IC’s generally do not submit interim reports; they are only responsible for reporting completion of the work.
12. Payments:
Employees.
An employee is paid by the hour, week, or month.
Independent Contractors. IC’s are normally compensated by a flat rate for a project or a manner different from the engaging firm pays its employees. However, if the general practice in certain trades and professions is to pay on the basis of a unit of time, the method of payment will not be given great weight.
13. Expenses:
Employees.
An employee’s business and travel expenses are paid for by an employer.
Independent Contractors. Typically, IC’s pay their own business and traveling expenses. However, it is customary in certain trades and professions for IC’s to bill their clients for disbursements such as travel, photocopying and other incidental expenses. Payment of disbursements in addition to the fee for services, does not create an employment relationship.
14. Tools and materials:
Employees.
An employer furnishes employees the necessary tools, material, and other equipment needed to complete the task.
Independent Contractors. IC’s generally furnish their own tools and materials.
15. Investment:
Employees.
Employees generally have no investment in equipment or facilities. This demonstrates a lack of interdependence from the hiring firm and is additional indication of an employer-employee relationship.
Independent Contractors. IC’s have an investment in the equipment and facilities used in their line of work.
16. Profit or loss:
Employees.
Employees are typically paid for their time and labor and are not responsible for ensuring that their revenue exceeds their expenses.
Independent Contractors. For an IC, a given assignment presents an opportunity for a profit (revenue exceeding expenses) or a loss (expenses exceeding revenues). In other words, there is risk and reward associated with being an IC.
17. Works for more than one person or firm:
Employees.
While an employee can have more than one job at a time, employers can demand exclusive employment and prohibit an employee from working for another employer.
Independent Contractors. IC’s usually offer their services to multiple, unrelated entities at the same time. Having more than one client or customer at a particular time is persuasive evidence of IC status.
18. Offers services to general public:
Employees.
Employees offer their services only to their employers.
Independent Contractors. IC’s offer their services to the general public.
19. Right to fire:
Employees.
An employee can be terminated by an employer.
Independent Contractors. An IC can be only terminated in accordance with terms of the agreement of engagement. For example, an IC who fails to perform in accordance with the contract terms is in breach, which may be a basis for termination.
20. Right to quit:
Employees.
An employee can quit his or her job at any time without incurring liability for uncompleted tasks or assignments.
Independent Contractors. An IC usually agrees to perform a specific task and is responsible for its satisfactory completion, or is legally obligated to take responsibility for the damages caused by their failure to complete the job. Right to quit.
California Employment Development Department.
What are some of the most common mistakes found in a tax audit????
A. Mis- Classification of workers.
Some companies want to save on employee costs by classifying employees as independent contractors. is much easier for a company to pay via a 1099 to avoid many taxes versus putting them as full-time employees.
B. Excessive use of cash in the business.
Some industries rely more so on cash transactions than others. However the IRS and EDD recognize that cash is more prone to abuse, concealment, and other wrongdoing. Thus, businesses that rely heavily on cash, even legitimately, face higher odds of an employment tax audit. There various sources in ways that IRS can find out if a company is relying heavily on cash.
C. Use of business funds to cover personal expenses.
CEO’s, managers, and company presidents who lose sight of the line that divides personal assets and expenses from business assets and expenses. For instance, individuals who embezzle funds from their company or who characterize personal trips as business retreats can face serious charges.
D. Failure to keep sufficient/adequate business records.
Employment and tax records must be kept by businesses for a certain number of years. If your company is audited, you will need to rely on these records to show your compliance with all employment tax obligations.
California Employment Development Division (EDD) Handles Employment tax and Payroll Tax
While the IRS handles the administration of the federal employment tax obligations, the Employment Development Division handles the state-based employment tax obligation in California.
The IRS & EDD typically requires an in-person meeting where they will take a tour of the business facilities. They very much act like an IRS auditor revenue agent during this process. Good agents make a full examination of the business, they keep their eyes out for everything.
Oftentimes, the IRS or EDD agent will conduct an informal interview with the individual giving the tour including the individual’s role in the company, the business the company is engaged in, and the markets and places where the company’s goods and services are sold. Sometimes they may want to ask employees questions.
A TAX TIP. As a former IRS agent make sure you walk with them and let your representative answer the questions. You do not want to fall into a government trap question.
What Records are required for a California or Federal Employment Tax Audit?
A California or IRS employment tax audit will typically begin with an in-person tour and interview of the facility by the auditing agent. The audit process truly begins at this stage as the auditor is detailed oriented and will take note of the scope and scale of your operations.
EDD and IRS may ask to see one year of records or they may expand the investigation of three years and IRS can expand it to a fourth-year depending on the omissions that they find if there are any.
California does provide for a list of minimum required business records as set forth by Sections 1085 and 1092 of the CUIC.
These records include:
• Annual financial statements,
• Ledgers,
• Check registers,
• Check stubs,
• Bank statements,
• Federal and state income tax returns,
Note: They may also asked for all electronic records pertinent to the above. This is not a comprehensive list.
The EDD may also request additional records for payroll purposes including state and federal tax forms such as W-2s, W-3’s ,W-4s, DE-9s, DE-7s, DE-4 and other documents.
Having former IRS agents and auditors on staff, we know exactly what government agencies look for during the time of their audit.
California and Federal Employment Tax Audit + Affordable Experts
