Fillable Printable Info Sheet: Waiver Of Penalty Policy (De 231J)

Info Sheet: Waiver Of Penalty Policy (De 231J)

DE 231J Rev. 9 (10-13) (INTERNET) Page 1 of 2 CU

WAIVER OF PENALTY POLICY

A request for waiver of a penalty requires an evaluation

of the facts presented in writing by the employer. For the

Employment Development Department (EDD) to waive

the penalty, the employer must establish that good cause

or reasonable cause exists, based on the facts involved

in the actual case. Good cause or reasonable cause are

issues when an employer fails to comply in a timely manner

with certain requirements of the California Unemployment

Insurance Code (CUIC) or Title 22, California Code of

Regulations.

Provisions for waiver of penalty for good cause are in

Sections 803, 991, 1088.5, 1088.8, 1111, 1112, 1112.5, 1114,

1116, 1117, and 13057 of the CUIC. Provisions for waiver

of penalty for reasonable cause are in Section 13052 of

the CUIC. Good cause and reasonable cause have been

interpreted by the California Unemployment Insurance

Appeals Board (CUIAB) to have virtually the same meaning.

Penalties charged under Sections 1126 and 1135 of the

CUIC, or any other CUIC section that does not specically

indicate provisions for waiver of penalty, cannot be waived.

Waiver of Penalty

A waiver of penalty request will not be considered until the

employer submits a request on e-Services for Business

or in writing that explains why good cause exists and the

reason(s) for the untimeliness. Billing will continue while

the request is reviewed. To avoid the accrual of interest and

stop the collection process, the amount due must be paid.

If it is determined that the penalty should be waived and the

penalty has already been paid, a refund will be issued or

applied to any outstanding liability.

Existence of Good Cause

Good cause exists where the circumstances causing the delay

are clearly beyond the control of the employer or where the

delay is due to a mistake or inadvertence under circumstances

not reasonably foreseeable by the employer. In other words,

the delay is not attributable to the employer’s fault.

Employers are expected to discharge their basic employer

responsibilities and, therefore, must establish all of the

following:

1. They acted in good faith (demonstrated history of timely

payment and reporting).

2. They acted in a diligent, timely, and prudent manner.

3. The circumstances could not have been reasonably

foreseen.

A good cause determination must always take into account

the total time period taken by the employer or his/her

representative to comply with the EDD’s requirements.

Precedent Tax Decisions

The EDD is required to follow the guidelines set forth

in precedent tax decisions issued by the CUIAB when

determining whether good cause exists.

According to Precedent Tax Decision P-T-23, good cause

must be more than a mere excuse. It must be a substantial

reason which affords a legal excuse accompanied by that

degree of diligence which men of ordinary prudence would

have used under similar circumstances. Good cause will

depend largely upon the facts and circumstances of each

case.

Precedent Tax Decision P-T-449 addresses good cause

in the case of a delayed remittance. In the decision, the

CUIAB stated that the employer had established a system

for ling returns/reports and remittances that it had reason

to believe was adequate and the belief was grounded in

prior experience and not mere speculation. Therefore,

an isolated instance of inadvertence not reasonably

foreseeable by the employer constitutes a substantial

reason which affords a legal excuse. In this case, the prior

history of the petitioner was considered, showing strong

evidence that the petitioner had reason to believe its

system was adequate.

In addition, the CUIAB stated in P-T-449 that when an

employer is aware that its procedures for reporting and

paying its tax obligations are inadequate and that employer

does not meet the time limits for ling the proper forms or

making the proper payments to the EDD, it will be at fault

and will not have good cause for the delay.

NOTE: Unforeseen nancial hardship is not grounds for

good cause. In Precedent Tax Decision P-T-449, the CUIAB

stipulated that “lack of funds to pay the amount owing on a

return does not constitute good cause.”

DE 231J Rev. 9 (10-13) (INTERNET) Page 2 of 2 CU

Examples Where Good Cause Does Exist

• The employer’s return and remittance for California

was inadvertently placed in the wrong envelope and

mailed timely to the Commonwealth of Virginia. The

CUIAB determined the employer’s late ling was due

to an isolated instance of inadvertence not reasonably

foreseeable by the petitioner and not attributable to any

fault of the petitioner (P-T-449).

• An employer failed to afx proper postage to an

envelope with a timely remittance enclosed. The CUIAB

determined the employer made a good faith effort to le

on time and believed it had done so. All other payments

and lings were made timely to the EDD and this was

an exception to that practice. In this case, good cause

existed.

• Good cause existed where the employer, under the

distress of the sudden illness of the employer’s father,

was unable to le and pay the contributions due timely.

• Catastrophic occurrences, such as re or earthquake,

or delays attributable to the postal service, would

clearly give the employer good cause (P-T-449). The

catastrophic occurrences would be subject to when the

calamity actually took place in relation to the time when

the taxes were due.

Examples Where Good Cause Does Not Exist

• The CUIAB held that an employer’s reliance upon

another to perform acts does not constitute good

cause since he or she may not complain of his or her

voluntary delegation of authority and, as principal, is

bound by the action or inaction of his or her agent.

• The employer contracted with an accountant to

handle its tax obligations. The accountant failed to le

reports while assuring the employer that all deadlines

were being met. The employer had a duty to select a

responsible accountant but did not do so. The employer

also failed to specify what assurances were given by the

accountant. Therefore, the employer failed to establish

it acted with the degree of diligence a person of ordinary

prudence would have used under the same or similar

circumstance. In this case, good cause did not exist.

• An employer’s public accountant prepared the return,

but no one was available to draw the check. The

accountant mailed the employer’s return unaccompanied

by payment. The CUIAB found the cause for failure to be

the accountant’s lack of knowledge of the law coupled

with the employer’s failure to have a responsible agent

with the authority to draw checks on its behalf to properly

discharge its responsibility to make contributions. Good

cause did not exist because there was no element

beyond the control of the employer.

• The mere fact that one partner may have been

defrauded does not constitute good cause for the

partnership not ling and paying returns in a timely

manner. The partner had knowledge of the “credentials”

or lack thereof possessed by the other partners. The

partner’s conduct in entrusting the total business to them

did not demonstrate the use of prudence or diligence.

The above-mentioned cases may not encompass the

entire set of factors used by the CUIAB in establishing the

existence or lack of good cause, and are presented here as

examples only. The EDD and the CUIAB will determine good

cause on a case-by-case basis.

ADDITIONAL INFORMATION

For further information, please contact the Taxpayer

Assistance Center at 888-745-3886, or visit the nearest

Employment Tax Ofce listed in the California Employer’s

Guide (DE 44) and on the EDD website at

www.edd.ca.gov/Ofce_Locator/.

The EDD is an equal opportunity employer/program.

Auxiliary aids and services are available upon request

to individuals with disabilities. Requests for services,

aids, and/or alternate formats need to be made by calling

888-745-3886 (voice) or TTY 800-547-9565.

This information sheet is provided as a public service and is intended to provide nontechnical assistance. Every attempt has been made

to provide information that is consistent with the appropriate statutes, rules, and administrative and court decisions. Any information that

is inconsistent with the law, regulations, and administrative and court decisions is not binding on either the Employment Development

Department or the taxpayer. Any information provided is not intended to be legal, accounting, tax, investment, or other professional advice.