Don’t let an EDD audit catch you off guard. Instead, prepare for any situation with this beneficial information. Learn what to expect during an EDD audit with this helpful post!
The Two Types of EDD Audits
All California business owners are susceptible to audits from the Employment Development Department (EDD). The department conducts two different types of audits: verification and request audits.
Verification audits are random and not based on assumptions of business wrongdoings. The department wants to verify business ownership and entity type for income tax returns. They assess your business, payroll size, and location, among other factors.
A request audit means the EDD targeted your business because they suspect wrongdoings like misclassified employees, payroll delays, or late taxes. Former employees can also tip off the EDD if they believe your business follows illegal practices.
Both instances require the department to investigate your company, and you should know what to expect during an EDD audit.
Once the EDD sends your audit notice, expect a pre-audit questionnaire and a standardized request sheet for records covering a specific period. Preparing the requested information before meeting with the auditor is important.
Verification audits are usually stress-free if you showcase accurate information. The auditor reviews documents to check their validity. After the review, the auditor sends a notice of determination to let you know if you passed the audit. If something is wrong, expect fines and penalties along with the determination notice.
Keep in mind that you can appeal the decision if you disagree with the notice.
Request Audit Expectations
Request audits are similar to verification audits in that auditors review company information. You should also expect standardized request sheets and a pre-audit questionnaire.
The auditor will select a random employee and review their W2 for the tax year on file. The department can also impose accounting and verification tests that compare business records to the EDD records.
Obtain all the right documents. It’s best to pre-audit your company to catch any discrepancies. In situations of inaccurate information, the EDD may send penalties and fines.
Important Preparation Tip
Obtaining an tax audit attorney is the first thing you should do after receiving an audit notice. An experienced lawyer will look over your company documents as you compile information. They’ll point out any discrepancies and ensure the paperwork is correct.
If you disagree with the EDD’s determination notice, an attorney can help you appeal the letter. It’s worth having legal help on your side, especially when dealing with the EDD!