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850,000 Poor Families May Be Eligible for Tax Refund : Lawsuit: The Franchise Tax Board authorizes up to $548 in individual payments to settle a dispute over renters credit for welfare recipients.

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TIMES STAFF WRITER

Hundreds of thousands of poor families may be eligible for up to $548 in refunds because two mothers decided seven years ago to protest when tax authorities determined that welfare recipients should not get the state’s maximum renters credit.

Franchise Tax Board officials have authorized the refunds as part of a settlement with poverty lawyers who represented Constance Watt, a Hayward mother of one daughter, and Juanita Diaz, a Bakersfield mother of seven.

Tax board spokesman Jim Reber said Tuesday that 850,000 welfare recipients are being notified by mail this month that they are entitled to a one-time payment if they did not file state income tax returns between 1985 and 1988 and they were renting and on welfare at any time during those years. They are entitled to $137 for every year they qualify, up to four years.

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“We don’t know how many of these people there are,” Reber said. “There could be dozens and there could be hundreds of thousands.”

It was nearly a decade ago that the two women were denied the state’s maximum $137 renters credit by the Franchise Tax Board on the theory that they were not heads of their households because more than half of the family income came from welfare. They challenged the decision in a lawsuit in 1983 and an appeal to the State Board of Equalization in 1985.

“I just thought it was wrong,” Diaz said in a recent interview. “I felt discriminated against. I thought they owed it to me.”

Last summer the board ruled in the women’s favor, deciding 4 to 1 that the Legislature had clearly intended welfare families to receive the maximum renters credit. The Legislature, in an attempt to give renters some of the same tax breaks afforded homeowners, had established in the late 1970s a $137 yearly renters credit for heads of households and a $60 credit for single people.

The Franchise Tax Board, however, had determined that welfare recipients did not fit the definition of heads of households and therefore were entitled only to the $60 credit. The decision by the Board of Equalization to overrule that determination meant that the board had to issue hundreds of dollars in refunds and interest to Diaz and Watt and thousands of other welfare recipients who sought the maximum renters credit and were denied it.

As of this month, Reber said the agency has paid out $6.7 million to 62,000 people.

But the ruling did not apply to those who had filed no returns at all between 1985 and 1988. Richard Rothschild, litigation director of the Western Center on Law and Poverty in Los Angeles, said the tax board agreed to seek out and pay refunds to this category of recipients last month after poverty lawyers indicated that they would continue to pursue the issue in court.

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“If you don’t have any income, it’s logical for you to think that you don’t need to file an income tax return,” Rothschild said. “We think thousands of people didn’t file because they didn’t know about the renters credit.”

Instead of getting a credit on their state income taxes, people with no income actually get a payment from the state in the amount of the credit.

Rothschild said the problem now is to find a way to notify those who may be entitled to the payment. In California, the average stay on welfare is two years. In any given month, the number of families receiving payments is about 500,000.

If families do not apply for the credit by April 15, Rothschild said they will lose some of their eligibility.

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