Change to W-2 form submission could provide barrier to fraud

Fraudulent state tax return refunds cost the state annually about $36 million in lost revenue, and the Department of Revenue is actively looking for fraud and setting processes in place to stop the leakage.

“We are not spending dollars to chase pennies here,” Revenue Commissioner Cynthia Bauerly told the House Taxes Committee early this session. “It is a significant issue for the General Fund.”

Changing the required date for employers filing W-2 forms with the department from Feb. 28 to Jan. 31 may seem inconsequential, but supporters say it would create a barrier for those seeking to file fraudulent returns. The provision is contained in HF2871, the Department of Revenue’s technical and policy bill.

Sponsored by Rep. Greg Davids (R-Preston), the committee chair, it was approved by the committee Wednesday and referred to the House Floor. The companion, SF2918, sponsored by Sen. Rod Skoe (DFL-Clearbrook), awaits action by the Senate Taxes Committee.

“This will eventually allow the department to match W-2 data with filed returns,” nonpartisan House Research Department analyst Joel Michael told the committee. “Individuals filing fraudulent returns usually don’t have access to the employee’s W-2 and could not know those amounts and not enter them.”

Parked on the Floor

The department bill is traditionally limited in scope and noncontroversial, but Davids hinted this year’s bill may end up being more that it appears.

With last year’s omnibus tax bill languishing in conference committee, HF2871 could become a so-called vehicle bill to attach language from tax bills heard this session that are being held over in committee.

“This is a vehicle bill, and it will be sitting on the [House] Floor,” Davids said. He is waiting for a financial target and direction from leadership on the future of all tax provisions — last year’s and this, and wants to be prepared.

WATCH Committee discussion of the potential for a major tax bill on YouTube

Rep. Lyndon Carlson Sr. (DFL-Crystal) questioned whether the bill might pass off the House Floor and be sent to the Senate where amendments would be added.

“I could see a scenario where you pass this over to the Senate and it comes back with pre-negotiations perhaps between you and the Senate, and they will include the necessary legislation that will allow you to take issues up in the conference committee,” he said.

Davids said that everything is in play as the session moves forward. “I don’t know exactly where this thing is going to go, I just know that we need a vehicle bill.”