Assessment vs Collections: What’s the Difference?
*The following article was updated in July 2022*
Many successful business owners, attorneys, doctors, accountants have called me and said “money has just been taken from my business account” and I don’t know what’s going on. This is one of the biggest issues business owners and taxpayers have when confronted by a tax agency. Sometimes it is difficult for them to determine who to call or what agency is collecting from them. Once they determine what agency to contact, they need to determine which department in that agency will give them a quick resolution. Taxing agencies, whether it is the IRS, the FTB for state income tax, the EDD for state payroll tax, or the CDTFA for sales tax, all have two distinct sides. One side being the Assessment of tax and the other being the Collection of tax.
Understanding the Two Sides of Taxing Agencies
The Assessment side determines how you get a bill, how you owe tax to the government. There are several ways the government can determine that you have a liability. The simplest way is when you file your own tax return, you are self-assessing yourself a liability. You are informing the government that you owe a certain dollar amount. Another way is through an audit. Each one of the agencies can review the return that you filed and request verification of expenses such as bank statements, third party documentation, or even using a formula for sales tax that could indicate that you are below the market norm and appear to be hiding sales. Once the bill goes final, you then are passed to the other department, the Collections side. The Collection side is not concerned about how or why you have assessed a tax or any reasoning behind your assessment, they just care about getting paid. They want their money and they want it now. You need to work with them. They want to know what your current ability to pay is which is generally your current income minus your current allowable expenses. The agents do not want to know what your income and expenses were at the time you incurred the tax. Most often it the is last 3-6 months of bank statements in conjunction with your last 3-6 months of expenses. If you have $100 of income and $90 of allowable expenses, the government is going to want the remaining $10 a month as a payment plan.
So, what happened? Why did the business owner or Taxpayer have the “money taken” from their bank account? Most of the time, we figure out that the taxpayer received a notice from the assessment side, didn’t respond, didn’t realize it was an audit, and the agency has made a determination. They made a determination based on the information they have in their system or from other government agencies. For example, the EDD can determine that the business owner or taxpayer has a certain number of people that actually should be on the payroll. Once that information is provided, they will send the business owner or taxpayer a letter and contact you again for a resolution. Similar to what happened before, sometimes those notices slip through the cracks. The bill will come to the client and there is a window of time to respond to the notice. If there is no response or documentation provided, then the determination will go final and it will be passed to collections. Collections will attempt to collect, may send a notice of levy to the bank account and the levy will occur.
Unfortunately, business owners and taxpayers think that when they are working with the assessment side, they could potentially prevent the levy. If you are dealing with the assessment side, they generally are not speaking to the collections side. This is very common with EDD cases. It is extremely important for you to know if you have any sort of payroll tax issues that you not only need to get a hold on the collections side of the account but that you are also trying to work with the assessment side to potentially reduce the liability. Discuss your situation in Orange County with our proven and trusted tax legal practitioner, we can help.
Hire a Knowledgeable and Proven Tax Legal Practitioner
If the EDD has sent you notice or levied your bank account, you should hire a professional to help. We, at Allison Soares, Attorney at Law, have years of experience working with the EDD to obtain a quick resolution. Please call us or contact us for a free consultation.