Arizona taxpayer settlement put on hold

Arizona Capitol Times is reporting that a judge has put a stop on refunds from a class action settlement in Arizona:

A judge has agreed to allow the state to delay sending scheduled July refund checks stemming from a class-action settlement to thousands of taxpayers who are said to have already received overpayments as high as $1 million.

‘We need to get this resolved so people get the refunds they’re entitled to–nothing more, nothing less,’ said Maricopa County Superior Court Judge Paul Katz May 26.

The July installment payment that was put on hold represents 25 per cent of the total refunds to be made in three payments by the Arizona Department of Revenue.

Judge Katz said he and lawyers for the state and taxpayers then will sort out whether and how the state can recover $5.5 million in overpayments already made through the initial installment payment last year, representing 50 per cent of the total refunds. A third payment is due in July 2006 to cover the remaining 25 per cent.

The July payment would produce nearly $3 million in overpayments if not put on hold, said Lisa Neuville, an assistant attorney general representing the Department of Revenue.

The state agreed to a $300 million settlement to resolve a class-action lawsuit filed on behalf of taxpayers who were improperly taxed on some corporate dividends during the late 1980s.

The department has said that programming problems, keypunching errors and other circumstances led to the overpayments.

The overpayments — and some underpayments — were detected through computerized reviews that compared calculated refund amounts against other information, such as taxable income and dividends received, Ms. Neuville said.

Further reviews of tax records are being conducted, she said. ‘We will know by the end of June exactly who is involved.’

The delay of July payments only affects those taxpayers whom the department contends were overpaid, and that’s only a small fraction of the 875,000 claimants in the case.

One married couple received more than $1.5 million in overpayments just in the first installment last year, Ms. Neuville said. Most overpayments involve much smaller amounts.

Judge Katz agreed with lawyers for the class-action plaintiffs who said taxpayers whom the state contends were overpaid are entitled to legal notice and the chance to individually fight the state’s efforts to get repaid for overpayments.

But first it must be determined whether the state has a contractual right to seek recovery of overpayments under the settlement agreement, said Paul Bonn, a lawyer for the plaintiffs.

Looks like AZ has a big mess to sort out.

…On a different note, though, wouldn’t it be neat to receive a $1.5 million overpayment and be allowed to keep it?