The state’s stepped-up efforts against tax cheats has resulted in delays of up to four months to issue legitimate refund checks this year, while also catching 8,585 suspicious tax returns.
The clampdown by an ad hoc tax fraud unit working overtime has prevented some $21.5 million in bogus refunds from being paid out this year, Department of Taxation Director Maria Zielinski said in an interview last week in her office on Punchbowl Street.
"There was definitely fraud," Zielinski said.
While some of the most egregious cases involving identity theft likely will be referred to the state attorney general’s office for possible prosecution, the crackdown on cheaters also means that legitimate Hawaii taxpayers continue to wait up to 16 weeks for their share of another $98.9 million in refunds that has yet to be dispersed.
Zielinski acknowledged that Tax Department officials were overzealous in their initial approach and in late January and early February had to recalibrate computer programs that were holding up legitimate filings as potentially fraudulent.
In all, the Department of Taxation expects to pay $495 million in refunds this year, compared with $478.4 million last year.
But the pace of refund payments has fallen well behind schedule.
$21.5M
Value of bogus tax refunds the Tax Department caught this year
8,585
Number of tax returns flagged as fraudulent
16
Weeks Hawaii taxpayers are told they will have to wait for their tax refunds
$98.9M
Amount in refunds yet to be paid out
|
In January the state paid out only $6.4 million in refunds, compared with $12.4 million in January 2014, then quickly lost even more ground.
By the end of May 2014, the state had refunded $437.5 million. But at the end of May this year, it had returned only $274.8 million in refunds.
Zielinski said that even her own tax refund was held up this year, but she declined to say how long she had to wait — or how much she got back.
Until last week even Gov. David Ige’s office had been receiving an average of four or five calls every day from taxpayers "who were concerned that they hadn’t received their tax refunds yet," Ige spokeswoman Jodi Leong said. The volume suddenly dropped to a total of just two calls last week, she said.
The response to each call has been the same explanation found on the Department of Taxation’s website, Zielinski said:
"We’re saying, ‘It’ll be 16 weeks from the date you filed.’"
Another round of refunds totaling $98.9 million is scheduled to be paid out sometime after the end of this month, when the fiscal year ends. Exactly when the money will get into taxpayers’ hands is unclear because tax officials do not "have that level of detail," spokeswoman Mallory Fujitani wrote in an email to the Honolulu Star-Advertiser.
To avoid tipping off cheaters, tax officials won’t talk about what kind of returns are being flagged. They previously said the state had been using 19 special "screens" to identify possible fraud, but Zielinski said that number was incorrect.
She declined to give the actual original number of "screens" — or reveal the recalibrated number.
For taxpayer Dawn Nekoba, the result is that she’s still waiting for thousands of dollars from the state.
She filed both her federal and state tax returns in early April and received her federal refund "weeks ago."
Nekoba, a state deputy public defender, wonders why her refund remains trapped in the state’s backlog.
"I would guess I’m low-risk (for committing tax fraud) as an attorney," she said on Punchbowl Street outside the Department of Taxation. "Shoot. I could use that money. It’s just irritating."
Getting refunds out to taxpayers like Nekoba has put additional pressure on a department that still relies on paper tax filings and manpower to review them, then scan them into computers where they undergo further scrutiny for potential fraud.
The Department of Taxation does not have a dedicated fraud unit. So the work to catch fraudulent returns has meant pulling employees with experience in reviewing returns from other areas to work extra shifts — on overtime — as "an ad hoc fraud unit," Zielinski said.
Some employees also came in on overtime Thursday on King Kamehameha Day, a state holiday.
Zielinski said she does not know exactly how many employees have been asked to review flagged returns or how much additional overtime the Tax Department expects to rack up this year chasing bogus filings.
"It’s not unusually high," she said. "It’s not an inordinate amount of overtime."
As dictated by state law, anyone whose refund is delayed beyond July 20 will receive an interest payment of one-third of 1 percent for each month beyond July 20.
Zielinski had no estimate of how much the state expects to pay in interest to taxpayers waiting for their refunds this year, but insisted it will be "very, very little."
Getting out the backlogged refunds requires constant coordination between the Department of Taxation and the Department of Accounting and General Services, which cuts the refund checks and makes automatic payments, to avoid overstressing DAGS, which also handles payroll for the state.
"There are limits on how many (tax) files can be sent to DAGS," Fujitani said. "Every day it’s a different amount."
Tax officials first started worrying about fraudulent filings in 2006 and 2007. By 2010 and 2011 it "was real bad," Zielinski said.
By the time the current tax season got underway, the computer system set up to detect potential fraud "was too good," she said.
While the delays are frustrating for people waiting for their refunds, Zielinski said this year’s experience will help next year’s tax season and could save Hawaii millions of dollars by catching more tax cheats.
Zielinski promised that next year "it’ll be a smoother process, and there won’t be the delays like this year."
