Devastated by an ESD Audit? Can an “Offer in Compromise” work for you?

The Employment Security Department (“ESD”) is a Washington state agency tasked with determining whether a business is required to pay unemployment insurance premiums on independent contractors. Yes, it is true.  If ESD so determines – after application of its independent contractor test –  you may be required to pay unemployment taxes (i.e. back taxes, penalties and interest) even on workers you classify as independent contractors.

For many businesses, an ESD tax assessment can be tens of thousands of dollars, and can effectively drive a company out of business. If there is any good news that can come out of an audit assessment, it is that the law expressly permits ESD to consider “Offers in Compromise” and to set aside audit assessments that are “against equity and good conscience.”  In other words, the law permits a business that has been devastated by an audit to get its assessment reduced — sometimes substantially reduced — if the business can show that it conducted its business in good faith and that the assessment would be financially devastating to business.  The showing typically requires a business to provide details of its financial condition (i.e. financial statements, tax returns, etc.) along with a financial condition-based offer to settle amounts owed to ESD.

So if you’ve just been hit by a devastating audit assessment, consider whether, as an alternative to an appeal, an Offer in Compromise is an option that is open to you.

For more information on how to comply with independent contractor obligations, consult with an experienced independent contractor law attorney, and check out 1099 Review™, a Mercer Law PLLC product, and Washington’s State’s first online independent contractor risk assessment tool and resource center.

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