North Carolina Doubles Tax Reviews of Large Families

Published June 18, 2010

For the second time in as many years, the North Carolina Department of Revenue is forcing large families to produce copies of their children’s birth certificates and Social Security cards or forfeit their tax refunds.

There’s one difference this time: Tax auditors have doubled the number of families up for review this year, reigniting anger from parents concerned it’s just a money-grab in tough budget times.

“I was really frustrated by the whole experience. It seems to just be a stall tactic,” said Jeanette Wilson, a mother of six who homeschools her children. “The most frustrating part for me is that it seems the burden of proof is on me.”

The reviews, intended to ensure taxpayers aren’t gaming the system, kick in for families who claimed seven or more exemptions on their income tax returns.

In addition to copies of Social Security cards and birth certificates, auditors have asked for copies of taxpayers’ federal returns and statements indicating their relationship to and the physical address of all claimed dependents.

Families are required to submit the information within 30 days or their refund won’t be processed.

New Families Targeted
The Revenue Department tagged 7,125 returns for review in 2009. Auditors have upped the number to 14,356 this year.

Parents say the review is just a way for a cash-strapped state to hang onto revenue as long as possible.

“The governor is using every legal means at her disposal to delay tax refunds from going out,” said homeschooling father John Walker.

Jeff Tracy, a father of five, called the reviews a “capricious witch hunt.”

“This is an extremely poor approach to catching fraudulent activity, since those committing fraud would have to be particularly bold or idiotic to fake so many exemptions that they couldn’t help but attract attention,” he said.

Tardy Tax Refunds
In an interview with this reporter last year, Revenue Department Secretary Kenneth Lay said the review of high-exemption taxpayers has nothing to do with the late refunds.

“They are two separate issues,” said Lay, a former Bank of America executive. “They are somewhat related, because it has to do with tax collection and refunds, but they are not directly related to each other.”

Last year’s tax season was the first time the state required filers to document their exemptions. The department plans to keep information obtained through the review on file, just as it does with traditional audits.

David N. Bass ([email protected]) is a reporter and associate editor for Carolina Journal, where an earlier version of this article appeared. Used with permission.