Scammers, the IRS wants you
CONCORD - Unlike most taxpayers, Richard Lavers is excited about the advent of tax season.
As counsel to the state Division of Employment Security, he's looking forward to the millions of dollars the state is going to collect from people who filed fraudulent unemployment claims, now that the federal government can garnish their U.S. tax refund on behalf of New Hampshire.
On Oct. 1, New Hampshire became the 19th state (including the District of Columbia) to qualify for the Treasury Offset Program for Unemployment Insurance Compensation Debts, in which the collection arm of the IRS grabs tax return money to offset debts owed to state or federal agencies before the balance, if any, gets sent to the taxpayer.
In just the first three months of participation, New Hampshire collected $57,000, according to Lavers. "That number is small in comparison to what we hope to receive during the course of the 2013 tax season, but was higher than what we expected," he said.
This is the second full tax year of the program. States participating in the first year on average got 20 percent of what they referred for collection. New Hampshire expects to submit close to $12 million for collection, and hopes to get $2.3 million to $2.5 million in redirected tax refunds to bolster the unemployment trust fund.
The threat of garnishing a tax refund can be as effective as the garnishment itself, said Lavers. Of the $57,000 the state collected in the fourth quarter of 2012, only $20,000 came through garnishment. The other $37,000 was collected on the threat of a garnishment, he said.
"Some of this debt is older debt that in past years perhaps would have been looked at as uncollectable because individuals were long gone, or we just couldn't locate them," Lavers said. "But now, with this tool, we are confident in our ability to find you and your refund regardless of where you are filing from."
The "you" Lavers is talking about are people who scam the unemployment insurance program by continuing to collect after they find a job.
"These are individuals who fail to report earnings while they are collecting unemployment benefits," he said. "We are trying to protect the integrity of the program and the balance of the unemployment compensation trust fund."
Quarterly wage review
The Division of Employment Security gets quarterly wage information from every employer in the state, and receives notification of every new hire. That information is cross-matched with unemployment claims so it's almost impossible to successfully double-dip outside the underground economy. But thousands of people try.
"They do it for one week, don't get a phone call or notice in the mail, and figure they got away with it," Lavers said. If people start collecting fraudulently at the beginning of the quarterly review cycle, the amount can really add up before they get caught.
As deputy assistant commissioner for debt management services in the U.S. Treasury Department, Ronda Kent is one of the nation's top debt collectors. She and her associates would like to see more states participate in the tax refund collection program, and expects to see more come on board in the months ahead.
The program as it currently exists was authorized by Congress in 2010 and implemented by the Treasury Department in 2011, in cooperation with the Department of Labor. States have to meet rigorous requirements to qualify and often have to pay for computer system upgrades to connect with Treasury Department computers.
"But the payback has been very good," Kent said. "For fiscal year 2011, we collected $25.9 million; in fiscal year 2012, we collected $133 million." New York, one of the first states to come on board in 2011, had collected $30 million in fraudulent unemployment claims as of Nov. 30.
States have to certify that the debt is valid and delinquent. The debtor has to get 60 days notice, must be given an opportunity to dispute the debt and must be offered a repayment plan.
"Of course we send a notice to the debtor explaining why they didn't get their tax refund, and we have a call center," said Kent. The call center can be reached at (800) 304-3107.
Having had some experience with the program in the slower fourth quarter, Lavers feels New Hampshire is ready to cash in as the busiest season for tax refunds draws near.
"People get refunds all year, but the vast majority of them arrive in late January through February, March and April," he said. "We worked throughout 2012 to gain approvals for participation and were able to work out the kinks in the process when it wasn't that busy, so we're very excited about what we're projecting for the 2013 tax season."