OVERVIEW OF EDD EMPLOYMENT TAX EVASION Investigation Division - - PowerPoint PPT Presentation

OVERVIEW OF EDD EMPLOYMENT TAX EVASION

Investigation Division Criminal Tax Evasion Unit EDD Frank Waldschmitt

WHAT IS EDD?

The Employment Development Department (EDD) is the State agency responsible for the administration of Unemployment and Disability Insurance benefits, and collect personal income taxes for the State of California. In addition, EDD is responsible for the administration and enforcement of the Employment Tax laws of the State of California as contained in the California Unemployment Insurance Code (CUIC).

WHO IS AN EMPLOYER?

An employer is a person or legal entity that hires one or more persons to work for a wage, salary, or other compensation.

DEFINITION OF WAGES AND OTHER COMPENSATION

All payments made to employees for personal services performed, including, but not limited to:

 cash payments  salaries  commissions  bonuses  wages disguised as loans  meals and lodging

WHO IS AN EMPLOYEE?

An “employee” includes any of the following:

 Any officer of a corporation, or  any individual who is hired by an employer to

perform services when the employer has the right to exercise control over the manner and means by which the individual performs his or her services.

621.5 CUIC STATUTORY EMPLOYEE

(a) Employee also means any individual who is an employee of a person who holds a valid state contractor’s license. (b) Employee shall also mean any individual who is an employee of a person who is required to obtain a valid state contractor’s license.

EMPLOYER REQUIREMENTS

 Employers are required to register with EDD by filing

a registration form (DE 1), within 15 days of paying $100 in wages. (CUIC 1086)

 Employers are required to submit all tax payments by

completing a Payroll Tax Deposit coupon (DE 88). (CUIC 2110)

 Employers are required to report employee wages to

EDD by filing a Quarterly Wage and Withholding Report (DE 9). (CUIC 1088)

ADDITIONAL

REQUIREMENTS

 Maintain wage, earning, deduction, and

withholding records on every employee. (CUIC 1085)

 Provide earning statements (pay stubs) to

each employee, every payday

 Retain records and returns for at least four

years.

WHAT ARE EMPLOYMENT TAXES?

Generally, there are four employment taxes to be remitted to EDD on a quarterly basis:

 Employment Training Tax  Unemployment Insurance Tax  Disability Insurance Tax  Personal Income Tax

DUE DATES

State Period Due by DE 9 1st Quarter April 30 Jan, Feb, Mar DE 9 2nd Quarter July 31 Apr, May, Jun DE 9 3rd Quarter October 31 Jul, Aug, Sep DE 9 4th Quarter January 31 Oct, Nov, Dec

UNDERGROUND ECONOMY

Underground economy is a term that refers to those businesses that deal in cash and/or use other schemes to conceal their activities and their true tax liability from government licensing, regulatory, and taxing agencies; also referred to as tax evasion, tax fraud, cash pay, payments under-the-table, and off-the-books.

HOW TAX FRAUD IS COMMITTED

 “ Cash Payers” scheme- A cash payer could be an

employer, or someone acting as an cash runner. The runners will cash the employer checks and pay the

• employees. Employer does not withhold deductions

from workers’ pay.

 “ The Keepers” scheme- Employer defrauds both

their employees and EDD. Employer withholds payroll taxes from employees’ pay but does not pay taxes to State or Federal government.

HOW TAX FRAUD IS COMMITTED

 “The Tokens” Scheme- Employer

reports a partial number of employee’s and wages to EDD to appear to be in

• compliance. This is usually because an

employer has public contracts that requires submission of Certified payroll reports.

CONSEQUENCES OF TAX FRAUD

 Employers gain a distinct advantage over their

competitors.

 Employers avoid tax and insurance expenses

associated with payroll.

 Employers also reduce the cost of doing business by

failing to pay employer contributions.

 Employees Unemployment or Disability Insurance

benefits may be delayed or denied because they are not properly reported.

 Employees don’t have check stubs, W-2’s, or a way to

verify their earnings.

CUIC VIOLATIONS

2117.5

Any person who, within the time required by this code, willfully fails to file any return or report, or to supply any information with intent to evade any tax imposed by this code, or who, willfully and with like intent, makes, renders, signs, or verifies any false or fraudulent return, report, or statement or supplies any false or fraudulent information, is punishable by imprisonment in the county jail….or in the state prison,….

CUIC VIOLATIONS

2118.5

Any person required by this code to collect, account for, and pay over any tax or amount required to be withheld who willfully fails to collect or truthfully account for and pay over the tax or amount shall, in addition to other penalties provided by law... be guilty of a felony.

HOW TO DETECT TAX FRAUD?

 Indentify and interview witnesses. Employers

that report partial wages usually pay wages by issuing paychecks in which payroll deduction statements (check stubs) are attached. These employees are generally listed under certified payroll reports.

 Surveillance of business or job site to

determine number of employees and activities. Cash paying employers usually have a set payday.

HOW TO DETECT TAX FRAUD?

 Public information—skip tracing through

internet.

California State License Contractor Board

www.cslb.ca.gov

California Secretary of State

www.sos.ca.gov

California Department of Industrial Relations

www.dir.ca.gov

People search http://pipl.com http://pipl.com/

REPORTING FRAUD

 To report Unemployment Insurance,

Disability Insurance, or Paid Family Leave fraud: Submit a Fraud Reporting Form on-line at www.edd.ca.gov, or Call: 1-800-229-6297

 To report Payroll Tax fraud:

Submit a Fraud Reporting Form on-line. Or Call: 1-800-528-1783, E-mail: ueo@edd.ca.gov

All allegations of fraud are taken seriously, and you can remain anonymous.

REPORTING FRAUD

 To report other types of fraud: If your

allegation involves fraud in the following programs please call the Agencies listed

• below. EDD does not handle these types
• f fraud.

 Workers Compensation - Contact the

California State Department of Insurance at 1-800-927-4357.

 Social Security Insurance - Contact the

Social Security Administration at 1-800- 269-0271.

How to prepare a TAX FRAUD Referral?

 Who: Who is the responsible party? A single

person, a business, or a corporation, a trust.

Printout : CSLB, SOS, bids, etc.

 What: What type of violations, and scheme?

Identify willing and non willing witnesses.

 Where: The physical description of the

location where violations occurred and where evidence may be found.

 When: EDD criminal case 4 years Statue of

Limitations from the date of discovery. EDD civil case 3 years Statue of Limitations