Bay State tax glitch bills many who paid
Thousands affected; DOR blames 2 firms
By Farah Stockman, Globe Staff, 4/30/2003
Thousands of Massachusetts taxpayers are receiving bills for taxes they already paid, as the state Department of Revenue admitted yesterday that some tax preparation software it encouraged taxpayers to use is incompatible with its own computer system.
The state agency is blaming H&R Block, one of the largest preparers of returns in this state, and Drake Software, a smaller company, for the problem.
Yesterday, DOR officials estimated that between 4,000 and 5,000 people have received erroneous demands for tax payments and penalties, and acknowledged they are trying to determine whether the problem is even more widespread.
The error is touching off confusion as angry taxpayers demand to know what happened. One tax preparer at H&R Block said an elderly man who received the erroneous bill sent in a second check for $300. Another tax preparer reported receiving calls from stressed-out longtime clients who were startled to be penalized for nonpayment of taxes they had sent in. ''It's very significant,'' said Tim Hubbs, executive vice president of Drake Software. ''We are very concerned about it, and we are trying to do what we can to try to communicate to our preparers to do what they can to be prepared to help their customers.''
The state says the problem stems from the software used by H&R Block and Drake -- two of 15 approved software programs for electronic filing of Massachusetts returns. Both programs ask taxpayers who owe the state money whether they want the payment withdrawn from their bank account.
Those who answered ''No'' and paid by mailing a check instead were mistakenly treated by the state computer system as if they had declined to make the payment, said Tim Connolly, spokesman for the Massachusetts Department of Revenue.
The other 13 software programs the state approved have an additional checkbox where taxpayers can inform the state that they are sending a check in the mail.
''It's an unfortunate error,'' said Kristin Siolka, a tax researcher with the National Association of Tax Professionals. ''The confusion is their software wasn't checked for the state of Massachusetts,'' she said, adding that she had heard of no problems with those software packages in any other state.
The Department of Revenue is seeking to downplay the glitch, saying it affects a tiny fraction of the 1 million taxpayers who file electronic returns. The agency, which sent out the mistaken bills on April 16 and April 18, is now telling worried taxpayers who call that they should simply disregard the bill if they have already sent in a check.
The department has not sent out letters to explain the situation or posted any notice of the mistake on its website.
''What we have been doing is handling people as they call in, explaining to them and apologizing,'' said Connolly. ''Obviously, we don't want people to pay their taxes twice.''
Connolly said he could not provide information about how many people have contacted the agency about the problem, or how many have paid their taxes twice.
As part of a campaign to persuade more taxpayers to file electronically and reduce its costs, the state this year discontinued its own free Internet tax-filing system and referred taxpayers to 15 software companies. The companies in return offered the software free to some lower-income taxpayers, offering a wider range of on-line tax-filing options.
The plan was designed to decrease the state agency's huge task of sifting through mail and processing the paper forms. More than a third of the state's 3 million taxpayers filed electronically this year, the highest number ever.
Technicians for the state agency gave specific criteria to the software companies for the development of their programs and reviewed the programs after they were finished, Connolly said.
But Connolly said it is ultimately the companies' responsibility to ensure that the software worked with the state agency's system, and that it is the companies' fault that the erroneous bills were sent out.
''This is definitely H&R Block's problem and Drake's problem,'' Connolly said. ''It's out of our hands, a software issue with an outside vendor.''
But Denise Sposato, spokeswoman for the Kansas-City-based H&R Block, which has at least 45 offices in the Boston area, said technicians were still trying to determine the cause of the error, and suggested Massachusetts may be to blame.
''We operate in 49 other states,'' she said. ''Nobody else is reporting a problem and that question was on every form.''
Hubbs, of Drake Software, acknowledged that the error had caused stress among his clients. He also acknowleged that the mistake could be a setback in the state and federal push for more people to file their taxes on line.
''I'm sure it could make some people nervous,'' he said.
Douglas Newman, vice president and tax director at Boston accounting firm Vitale Caturano & Co., said Massachusetts tax officials have to take some responsibility for the error.
''If the DOR wants to encourage software companies to promote electronic filing, it is incumbent upon the DOR to make sure that it allocates sufficient resources . . . to ensure that the software companies and the DOR are in sync,'' he said.
This story ran on page A1 of the Boston Globe on 4/30/2003.
© Copyright 2003 Globe Newspaper Company.