State of Arizona to Start Refund Process for Dividend Income
In an earlier edition of our regular newsletter, we informed you that the state of Arizona was going to be forced to pay refunds based on dividends that were taxed on Arizona returns filed from 1986 to 1989. On October 7, 2002, the state of Arizona issued a release announcing just how the refund process was going to work and what steps taxpayers would have to take to participate in the refund process.
In
general, the state of Arizona is required to attempt to compute the amount of
dividends that you reported in those years and to identify taxpayers who should
be part of that class. However,
there are a number of important dates you will need to keep track of in order to
assure you receive the full payment due you.
Note
that the process may still change even after you begin to receive the notices
listed below. The court will hold a
hearing in December at which time objections to the settlement can be heard.
But the process is still going to begin even though there’s a
possibility that the details may change.
Important Date 1—November 5, 2002
The Arizona Department of Revenue is supposed to notify all taxpayers that its records indicate should receive a refund of that fact by November 5, 2002. If you do not receive that notice and you did file a return with the state of Arizona in any year from 1986 to 1989 and had dividends in any of those years, you will need to file a claim with the Arizona Department of Revenue to be eligible to receive a refund.
If you do receive the notice, you do not need to do anything at this point to be included as part of the class to receive refunds.
Important Date 2—January 30, 2003
If you do not receive a notice and you should be included in the class, you will not be included unless you take action by January 30, 2003. The Arizona Department of Revenue is to publish a claim form on or before November 6, 2002 that will allow those who aren’t notified by the Department of Revenue they are part of the class that they should be included. This form must be filed on or before January 30, 2003.
Once the form is out, we will be glad to forward a copy to you if you request it from us. We can also prepare the form for you, if you wish, though such preparation will be subject to our normal charges. At this point, since we’ve not seen the form, it is impossible to judge what that charge might be, but it seems likely that the form will only ask for identifying information and so should not be extremely time consuming for us to fill out. If you want us to fill out the form for you, you will need to contact us prior to January 1, 2003 to insure there is enough time to complete the form and get it back to you.
Similarly, because the form should be relatively simple to fill out, you may find it easier to just fill it out yourself. Again, we will be happy to provide you with a copy of the form once it is made available.
Note that however the form is filled out, you should be sure to document the
fact that you filed this form. We
would strongly recommend the use of certified mail to document the filing of the
claim. If you fail to file the
claim by January 30, you will not receive any refund.
Important Date 3—45 Days After Notice of Missing Information
While the state will attempt to determine what dividends you reported in those years, the state may determine they do not have sufficient information to make that determination for one or more years. If the state determines that, they will ask you to provide documentation of such information. You will have 45 days from the date of the letter to provide that information to the state. If you do not provide the information requested, the state is given the authority to assume the proper amount should be zero for all years they are missing information.
If you do provide the information, the state has a right to evaluate the information and determine whether or not they will accept your evidence as reliable. If they dispute the amount, you will have an opportunity to contest that disallowance.
If we prepared your returns during the years in question, we may have copies of information related to your dividends for those years that you provided us. Again, we are glad to assist you in compiling any necessary information, though there will be a charge for the research time involved, as well as charges for putting together the information for the state. At this point we are not sure what information the state will request or how involved the matter will be. However, we will give you an estimate of the likely cost of our assistance once you have received this notice and we have a better idea of what the state will be asking for.
If you wish us to assist you in compiling this information, we must receive a copy of the state’s request no later than 21 days before the due date for submitting the evidence. Preferably, you should submit this information to us as soon as you receive a notice from the State of Arizona.
Based on the information we have, it would appear that if you are going to receive this notice, you will likely receive it sometime early in 2003.
Important Date No. 4—45 Days After Notice of Dividend Calculation
During the spring of 2003, the State will notify all members of the class of the amount of dividends they have determined were reported by the taxpayer for each of the affected years. You will have 45 days to dispute the state’s determination or that determination will become final even if it is in error.
If we prepared your income tax returns during those years, again we may have the information in our files in storage to be able to confirm the amounts the state has reported. If you wish, we will be glad to search our records to confirm the amounts in question, though again there will be a charge incurred for the research. If the state’s amounts appear in error, we will also be glad to help you dispute the amount for a fee based on the time involved. Again, we will be glad to estimate the fee for you prior to performing this task.
If you wish us to assist you in determining if the state’s numbers agree with the returns you filed and to assist is preparing documents to dispute any errors that appear to exist, we must receive a copy of the state’s notice no later than 21 days before the due date for submitting the protest. Preferably, you should submit this information to us as soon as you receive a notice from the State of Arizona.
Refund Computation and Payment
The refund that will be paid to you will not be based on a complete recalculation of the proper tax for the year in question. Rather, an amount equal to 49.28% of the total dividends you reported in each of the years will be subtracted from your Arizona taxable income, and your tax will be recomputed based on the rate schedule for that year. Additionally, interest due to you will be computed based on the period from the date the return was filed until the date of expected payment.
However, there is a cap on the total amount to be paid. If total claims exceed that cap, all refunds will be reduced proportionately—so the preliminary refund calculated may not be what you will actually receive.
The refunds will also be paid out in three payments. The first payment, equal to 50% of the refund due, will be paid out sometime in mid-2004. The final two payments, each equal to 25% of the amount due, are scheduled to be paid in mid-2005 and 2006. The state has the option of paying all refunds that are computed to be $400 or less in one lump sum at the first payment date. The state also has the right to pay off all remaining claims earlier than the dates above.
What Do I Do Now?
Right now you need to simply wait to see if you receive a notice by November 5. If you don’t receive one and you should be included in this group (you filed an Arizona return in 1986, 1987, 1988 or 1989 and you had taxable dividends) then you will need to be sure a claim is filed on the proper form by January 30, 2003.
The next step is to wait to see if you are asked to provide supporting information. If you are, you must act promptly (45 days) or lose the right to those dividends.
Finally, you will need to read the notice you receive of the dividends that the state determines you reported in the years in question. If that notice appears to be incorrect, you will need to file a dispute within 45 days of the date of that notice.