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Charles Markham
Charles Markham, Enrolled Agent
Category: Tax
Satisfied Customers: 653
Experience:  IRS Enrolled Agent, US Tax Court Practitioner
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I have run my business for a little over 4 years now paying

Resolved Question:

I have run my business for a little over 4 years now paying my workers as independent contractors (W-9)
I received an audit notice from the Employment Development Department and I have feeling they are not going to agree with my definition of "employee vs independent contractor".

Will I be held responsible for taxes not paid for the last 4 years and is there an approximate percentage of tax per dollar paid out?
Submitted: 4 years ago.
Category: Tax
Expert:  Charles Markham replied 4 years ago.

TaxWhisperer :

I would agree with you, that the state agency will say you've been misclassifying. Yes, they can go back 4 years in California. But that's all they can go back. If you proceed very slowly with the exam, you might have the statute expire for the oldest year. Do NOT sign any agreement to "extend the statute of limitations" because they shove it in your face in a threatening way.

TaxWhisperer :

This is only for the California UI. So actually, the per employee charge may be quite limited.

TaxWhisperer :

Your real fear is the IRS.

TaxWhisperer :

You should strongly consider the IRS's Voluntary Disclosure initiative.

Customer:

Considering the Voluntary Disclosure will limit the "book" being thrown at me?

Customer:

from the IRS

TaxWhisperer :

Yes, absolutely, the payment for the IRS program is a fraction of what you would owe otherwise.

TaxWhisperer :

Cal WILL forward their results to the IRS.

Customer:

So if I voluntarily disclose, is that basically admitting wrong doing even thought this happened due to my inexperience and ignorance towards classification until I received my audit notice.

TaxWhisperer :

I suppose that's one way to put it. You can read the IRS forms and see what you are signing.

Customer:

I'm guessing I should wait to disclose to the IRS until after the audit by the EDD is complete? Or better to do this now?

TaxWhisperer :

No. Exactly the opposite. By then, you will have had a finding against you and are no longer eligible for the amnesty.

Customer:

ah, should i google "voluntary disclosure" to find the forms?

TaxWhisperer :

Just a second

TaxWhisperer :

It's VCSP

TaxWhisperer :

Voluntary Classification Settlement Program

TaxWhisperer :

You go just go to www.irs.gov

Customer:

Ok, thank you very much for the help. So for CA I will only be "on the hook" for unemployment? Isn't there a $7,000 per employee per year cap?

TaxWhisperer :

Right, so you take the tax rate times $7,000. I think it's like $114 per employee, but don't quote me. I am not sure if they are going to

TaxWhisperer :

hit you up for SDI or not.

Customer:

$114 per year per employee?

Customer:

approx

TaxWhisperer :

For the UI tax.

Customer:

Ok, well thank you very much for your help & advice

TaxWhisperer :

But CA also has SDI which the EDD assesses. This is normally a tax that you turn around and deduct from your employees. So you really don't pay it. That's why I am not sure if they would assess that retroactively.

TaxWhisperer :

If I have been of help, please click accept thank you.

TaxWhisperer :

You can also look me up here as the exam progresses. I have handled EDD audits before.

Charles Markham, Enrolled Agent
Category: Tax
Satisfied Customers: 653
Experience: IRS Enrolled Agent, US Tax Court Practitioner
Charles Markham and 3 other Tax Specialists are ready to help you

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