Noreen Richards says she and her wife called the New Mexico Department of Taxation and Revenue after waiting more than three months for their $157 state income tax refund.

Richards says the couple was told that, if they wanted the money, they needed to prove their identities by providing the department with copies of income documents, Social Security cards and driver’s licenses.

When the couple asked why the department hadn’t contacted them to request their proofs of identity, they were told, “You’ll probably get a letter eventually,” according to Richards.

The couple never received a letter, she says, but their refund arrived – without explanation – in July while they were gathering the documents. They don’t know why the department changed its mind.

It’s far from an isolated case.

In what has been described as an increased effort to combat tax fraud due to identity theft, Tax and Rev says it stopped – at least temporarily – nearly 74,000 personal income tax refunds this year. That amounted to more than one out of 10 claimed refunds by New Mexico tax filers.

Of the nearly 74,000, more than 22,000 received their refunds after Tax and Rev was able to determine the returns were legitimate without requesting proof of identity, according to statistics provided by the department.

Tax and Rev says it requested proof of identity from nearly 49,000 other filers and more than 36,000 of those eventually received their refunds. It’s not clear how many of those who didn’t respond were identity thieves or how many were legitimate taxpayers who didn’t provide the requested information for other reasons.

Tax and Rev denied refunds to nearly 3,000 filers without notifying them, because of a high likelihood of fraud.

There have been plenty of complaints from tax filers like Richards and her wife, Bernadette Koh, whose identities were questioned. Among the most common complaints received by the Journal and tax professionals are:

– Not receiving notices from Tax and Rev that refunds had been denied or that proof of identity needed to be provided.

– Difficulty in reaching a person at Tax and Rev to discuss returns and what was needed to prove identity.

– Frustration in faxing identity information to Tax and Rev because the line was often busy.

One taxpayer whose identity was questioned was reportedly due a refund of $12.

Ripple effect

The fraud-prevention efforts also delayed refunds to the hundreds of thousands of other taxpayers whose identities weren’t questioned by Tax and Rev.

“I think that we all agree that identity theft is a concern for all taxpayers. However, when (Tax and Rev) randomly targets thousands of New Mexico citizens in such an unorganized and poorly planned fashion, that is the real cause for concern,” Shelley Barker, president of the New Mexico Society of Enrolled Agents, an association of tax professionals, wrote in a letter to Tax and Rev Secretary Demesia Padilla.

Padilla, an appointee of Gov. Susana Martinez, declined to be interviewed for this story.

Tax and Rev spokesman Ben Cloutier said in an email, “Refund fraud and identity theft has grown exponentially in recent years, and we are constantly updating processes and improving security measures. As we continue to develop our review process, procedures will be improved or replaced in order to make the process more efficient, secure and taxpayer-friendly.”

Lawmakers concerned

Rep. Debbie Armstrong, D-Albuquerque, has accused Tax and Rev of targeting the elderly and has asked the department for age statistics for tax filers who didn’t get expected refunds because they failed to respond to a department request to provide proof of identity to get the money.

The number of people ages 65 or older who are victims of identity theft has skyrocketed in recent years, according to the U.S. Justice Department.

Rep. Jason Harper, chairman of the Revenue Stabilization and Tax Policy Committee, says he understands the need to combat tax fraud due to identity theft. “That said, I think the way that the Tax and Rev Department rolled it out could have been done better,” says Harper, R-Rio Rancho.

Whatever process the department used to identify potentially fraudulent returns was flawed, because some legitimate refunds were red-flagged, he says.

Sen. Carlos Cisneros, a Questa Democrat and vice chairman of the Revenue Stabilization and Tax Policy Committee, says Tax and Rev needs to streamline its fraud-prevention efforts and show more courtesy to taxpayers. “There has to be a much easier way” to prevent fraud, Cisneros says.

Tax and Rev had announced in March that income tax refunds would take six to eight weeks instead of the usual two because of the efforts to prevent tax fraud due to identity theft, but Cloutier declined to provide statistics on the average processing time for all refunds this year as compared with 2015.

The department says it permanently stopped more than 14,000 fraudulent refunds, totaling $9.5 million. Cloutier declined to explain how those numbers were calculated, but they apparently include refunds claimed by filers who were never notified they needed to provide proof of identity, and legitimate filers who couldn’t provide Social Security cards or other documents requested by Tax or Rev or became frustrated in dealing with the department and gave up on their refunds.

As for Richards, she says the couple learned a valuable lesson: adjust their state income tax withholding so they won’t be due a refund from Tax and Rev next year.

“We will be sure to owe the state,” she says.

Copyright © 2016 Albuquerque Journal
By Thomas J. Cole / Journal Investigative Reporter
Published: Sunday, August 7th, 2016 at 12:05am

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