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:

• 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.