Vermont Society of Certified Public Accountants

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Message from Vermont Tax Department

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Mar 14, 2017 —

Tax Department PIT Refund Timing

I’d like take a moment to update you on the tax refund process. Preparers and taxpayers are directly impacted by PIT refund delays and I want to make sure you know what is going on, so here is an in depth discussion for those of you interested:

In the not so distant past, it was typically the goal of tax and revenue departments across the country to focus on getting refunds out the door as soon as possible. That approach, along with changes in technology, enabled a criminal industry focused on creating false returns to obtain other people’s tax refunds.  At the federal level, the IRS reports billions of dollars in both blocked fraudulent refunds and fraudulent payments annually. If we scale this experience to Vermont’s volume, we would be looking at up to $8M in fraudulent payments or attempts.  The FY17 budget does not anticipate this type of leakage! The Vermont Department of Taxes has successfully avoided that fate, but admittedly it comes at a cost to refund timeliness and customer service.

Delayed refunds drive our call volume very directly. This means our tax examiners are spending more time on the phone and less time releasing refunds, leading to more phone calls. During tax season, we rely heavily on temporary employees to mitigate the impact. Needless to say, it is not just a balance between making taxpayers happy and preventing fraud, it also includes consideration of wait times on the phones, staff workloads, and quality of service. There is no perfect balance, in fact it is likely that no two people reading this email (or in this Department!) would agree on what the exact sweet spot is between fraud risk and customer service as it relates to refund timing. And to be clear, that is exactly what the decision represents; when we push refunding faster, we know we increase the risk and volume of fraudulent payments, most of which are difficult or impossible to recoup.

I want to assure you that striking the right balance is a daily discussion and priority here at Tax. A team consisting of IT and Taxpayer Services meets several times per week to calibrate our system and get more refunds out the door. We do prioritize the oldest refund requests in this process. I had an opportunity to sit in on one of these meetings recently. While it would be unwise of me to share the specifics of our process, suffice it to say I was extremely impressed at the sophistication of the fraud scoring in the new VTax system and how dynamic we can be in speeding up and slowing down refunds based on specific factors, and unique combinations of those factors. We are constantly exchanging and receiving information from the IRS and other states to identify this season’s suspicious file characteristics and incorporate that into our system. Our folks are constantly tending to “work lists” to get eyes on high risk refund requests and, where appropriate, release those refunds. They take knowledge gained from that work back to these meetings to sometimes lwer or even eliminate scores attributed to certain characteristics.

While it doesn’t get the refunds out of the door any faster, I hope that having this additional information about our process and philosophy helps taxpayers and preparers understand the delays here at Tax. Delays are not about collecting additional interest (one of the more concerning narratives we have heard), or about system problems or dysfunction. They are about staff workload combined with strategic decisions we are making in the Department as part of our fiduciary duty to the State of Vermont and its taxpayers.

Lastly, I want to share some specifics that may be useful:

  • I can tell you that last week we made a significant calibration that released a very large batch of refund requests that were more than 30 days old. We have issued about 47,000 refunds as of today. This is lower than this time last year, but we hope to continue an increased pace.
  • We have a tangible bottleneck in processing of paper returns (and paper W-2s). These have to go through our mail room and then our imaging system before even hitting our anti-fraud protocol. We communicated an extra couple of weeks in refund timing for paper files. Every bit of that is true, if not more.
  • The earlier a taxpayer filed (particularly January filers), the longer the total wait. We did not get full cooperation with our 1/31 W-2 filing deadline. Early February delays in W-2 and other data files used for fraud prevention means more significant delays for those filers.
  • Every year brings new fraud threats to tax and revenue departments. Unfortunately, these waiting times may become a new normal. The best defense for individual filers is to pay more attention to withholding and don’t use the Tax Department as a savings account. I know you counsel your clients on this, but it may be worth enforcing the message. After tax season we will likely do a press release talking about various off-season tax topics, which would include reviewing withholding amounts and continuing to be transparent about refund timing.

I would be happy to share some data periodically on our progress in speeding up refund processing. Let me know if that would help you in your communications with clients.

Thank you for your time and understanding.

Kaj Samsom,

Kaj.samsom@vermont.gov

Commissioner

 

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