Minor Errors Costly, State Says : Little Things Mean a Lot When Filing Tax Returns

Little things mean a lot to the state Franchise Tax Board and its computer.

Even the most insignificant, careless errors on a state income tax return can trip up the computer, meaning costly corrections by board employees and delays in delivering tax refunds to Californians.

About 20% of the nearly 12 million 1984 tax returns processed last year by the board contained mistakes, mostly minor. Similar figures are expected on 1985 returns, which have begun to flow to the board, said board spokesman Jim Reber.

“The state could save a significant amount of money if many of the careless errors could be eliminated by filers,” Reber said.

Among the most common minor errors on the returns are failure to enter the correct Social Security number, confusion over which filing status a taxpayer should select, claiming oneself as a dependent as taxpayers do on the federal income tax return and faulty use of the tax table.

Reber advises taxpayers to “double-check your returns before you put them in the mail.”

Any mistake detected by the computer must be corrected manually by board personnel. “This means a two- to four-week delay in sending out refunds,” he said.

“We go ahead and make obvious corrections because lengthy delays in making corrections will mean billing the taxpayer for interest payments on the correct tax owed,” he said.

Error Rate Declining

Reber said routine errors are corrected and a computerized statement pointing out the change is sent to the taxpayer. In some instances, taxpayers are asked to supply data needed to make the correction. Unsigned tax returns are sent back to the taxpayer.

Reber said the rate of errors has been slowly declining in recent years.

A major reason is that more taxpayers are turning to professional tax preparers, he said. About half of all returns are done in that manner, he said.

Another reason for fewer errors is that more sections of the state return now conform to the federal income tax return. “The more often you fill out one of these forms, the easier it is,” Reber said.

He pointed out the state tax return was revised for 1985 to make it easier to read and understand.

While minor mistakes are corrected in a routine manner, Reber said, it takes more than a year to catch major errors--and that means a big bite out of the taxpayer’s wallet.

Interest Charges

Reber said the board’s audits of tax returns occur at least a year or possibly two after the return is filed. Errors showing an underpayment of taxes not only mean collection of the tax owed but also interest on the owed tax.

The most common major errors detected by audits are taxpayers wrongly claiming the $100 income exclusion on dividends and deducting contributions to individual retirement accounts.

Reber notes that taxpayers are liable for errors in the previous four years of returns--compared to three years for federal returns. However, he said, there is no statute of limitations on unfiled returns, with penalties reaching as high as 50% of the tax assessed.

The dividend exclusion is offered on federal income taxes but not by the state, he points out.

Reber said taxpayers eligible for pension plan participation cannot deduct up to $2,000 a year in IRA contributions on their state returns--like they can on their federal returns.

Reber advises taxpayers who realize they have made major mistakes on past tax returns to immediately file amended returns. “Interest assessments will mount up for those who wait for auditors to detect their errors,” he said.

While changes in tax laws each year can cause confusion for those preparing their own returns, they can mean good news for some taxpayers.

Many California senior citizens got a pleasant surprise when they checked their 1985 state tax return. Taxpayers who are 65 or older may be able to exclude up to $1,000 from their 1985 gross income--a benefit provided by legislation passed last year.

Other changes include more generous tax credits for low-income taxpayers and for child and dependent care costs.

Reber said the instructions on the tax return cannot anticipate all questions from taxpayers. Answers to tax preparation questions can be obtained by calling or visiting the board’s field offices throughout the state, he said.