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The Phantom Refund

Storytime, crew! Gather 'round.

In tax year 2005 I had to file an amended return for various reasons (an HSA mixup that resulted in a corrected W-2, and several corrected 1099s) and on both the original and amended returns I owed money to the state of Oregon. My second payment was $90, consisting of $88 owed because of the changes in the amendment and $2 interest. That payment was made at the end of last May — approximately 10 months ago.

Imagine my surprise when today I receive in the mail a "Notice of Deficiency" from the Oregon Department of Revenue stating that I owe the state $94.06 for my 2005 taxes — $90 plus interest. No, hang on, that doesn't seem right…

I checked my records; I mailed the check. I have my checkbook carbon copy and the record of it posting in my bank statement. I've ordered a copy of the cleared check from the bank so I can mail it along with a dispute letter to the Department of Revenue.

And then I looked a little more.

The Notice of Deficiency contains a list of figures from my tax return in two columns, original and adjusted. The first line that's different is labeled "Income Tax Refunds Received" — they show $0 under Original and $90 under Adjusted. There's no record of the $90 I sent to them.

Aha! I see what happened. When I sent them $90, they recorded it as them sending me $90! They got it backwards. (But not completely backwards, because they're only asking for ~$90, not ~$180…)

Naturally, this has some cascading effects. Oregon sent me a 1099G for the 2006 tax year that showed a $90 tax refund. I didn't think anything of it at the time, of course, because I didn't check it against my previous year's tax returns. But this creates a problem for filing my 2006 taxes — my 1099G is wrong, showing $90 of phantom tax refund. I don't want to get taxed for money I never received!

Why do they wait until the following year's tax season to mail stuff like this? They should've done it, oh, let's be generous and suggest six months ago. I've been hoping for a long time that I would have an uneventful tax season this year, because both 2004 and 2005 were complicated and involved amended returns. I didn't want to go through that again. Sigh.

… but wait, there's more!

The Oregon Department of Revenue's error isn't quite as straightforward as it sounds. They said I owe $90 plus interest, but they curiously gave me a $2 credit in the mix. Somehow they managed to turn my $90 payment into a $90 refund while also crediting me for the $2 of interest owed on my original $88 due!

It would appear that they got my money, and even applied a portion of it correctly, but then they blew it and got everything else wrong.

Obviously no human being has reviewed this situation; I am not able rightly to apprehend the kind of circumstances under which that $2 credit would make sense to any person. This was the result of some software doing the best it could with bad data.

I went to see my tax preparer about the matter and we ended up laughing and telling each other it shouldn't be funny.

Tiny Island