Department of Taxation and Finance

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NYS Comptroller

THOMAS P. DiNAPOLI

Department of Taxation and Finance
Personal Income Tax Refunds
(Issued: 4/16/2014)


Purpose

The objective of our examination was to determine whether personal income tax refunds approved by the Department of Taxation and Finance (Department) for payment were appropriate and processed in accordance with applicable New York State tax laws and regulations.  We examined refunds processed during the calendar year January 1, 2013 through December 31, 2013.


Background

The Department processes all New York State personal income tax returns.  All returns that result in refunds are subject to audit by the State Comptroller prior to payment.  We selected Department-approved refunds for examination using filters to identify high-risk transactions.  During the period of our examination, the Department processed over 7.5 million refunds totaling almost $8.9 billion.  Of this, we selected 33,175 refunds totaling over $712.5 million for examination.


Key Findings

Of those transactions selected, we identified and returned to the Department 12,746 questionable refunds totaling over $93.3 million, as summarized in the following table:

Reason for Stopping Refund Number of Refunds Dollar Value of Refunds
Taxpayer claimed refundable credits based on incorrect information such as fake or inflated number of dependents or understated income 6,860 $21,597,215
Tax preparer submitted returns with refundable credits based on incorrect information 2,236 6,150,150
Taxpayer claimed incorrect wages and witholding 1,001 6,240,927
Taxpayer had questionable social security number 987 2,425,354
Taxpayer failed to claim correct New York State income 225 4,773,348
Taxpayer had questionable itemized deductions 183 1,575,210
Taxpayer failed to claim correct New York City income 127 375,046
Two largest errors caused by third-party vendor 2 36,050,261
Other (e.g. various errors on return) 1,125 14,113,214
Total Refunds Stopped 12,746 $93,300,725
  • The number of questionable refunds we stopped was higher than usual due, in part, to refunds the Department approved that were generated based on errors made by a third-party vendor when scanning and capturing data from taxpayers’ paper returns.
  • We obtained and used data from select New York State and New York City agencies to identify taxpayers claiming unwarranted credits.  This allowed us to stop 1,976 questionable refunds valued at almost $6.4 million.


Key Recommendations

  • Continue working with the third-party vendor to resolve data errors created during scanning of taxpayers’ returns.
  • Obtain and use data directly from select New York State and New York City agencies to help identify unwarranted credits.
  • Continue to identify and implement other opportunities to help identify and prevent erroneous refunds.


For a complete copy of the Report 2013-1A-001, click here.


Division of Contracts and Expenditures
Bernard J. McHugh, Director of State Expenditures

Phone: (518) 474-4868 Email: stexpend@osc.state.ny.us
Address: Office of the State Comptroller, Division of Contracts and Expenditures
110 State Street, 10th Floor; Albany, NY 12236