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John Warren is an Enrolled Agent, photogaphed here inside his Medford office. Enrolled Agents are federally licensed tax professionals who are allowed to represent taxpayers before the IRS for audits and collections.

Around 2,100 Massachusetts residents received one of those chilling notices that says you owe the taxman some money. But it turns out to have been a false alarm.

After receiving calls from confused taxpayers and tax preparers, the Massachusetts Department of Revenue said it found a fault in a commercial software program called TaxAct that some professionals and individuals use to file returns.

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The program had incorrectly coded payment vouchers from those customers to 2017 instead of 2016, so their checks were applied to the wrong year.

A DOR spokeswoman said the agency received payments from fewer than 50 taxpayers, all of whom should receive a refund by next week. The 2,100 affected taxpayers will also soon receive a letter to let them know that the issue has been resolved, although the spokeswoman said many had already learned of the mistake by calling into the agency.

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John Warren, president of the Massachusetts Society of Enrolled Agents, said he began hearing of the problem last week from members.

We found out about it by just networking with each other, and taking the initiative to contact the right person at DOR, Warren said.

The DOR spokeswoman said that the mix-up was due to human error: Upon receiving the specifications for state forms to prepare its program, TaxAct put the wrong year in the barcode, and the DOR did not catch the mistake when the software was reviewed.

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In a statement, TaxAct said it became aware of the problem on Monday through the DOR. It added that 5 percent of TaxAct filers in the state were affected .

We have a good working relationship with the Massachusetts Department of Revenue and are working quickly and diligently with them to rectify the situation. We apologize to those impacted for the inconvenience and concern this has caused, and we will be contacting those filers impacted, TaxAct wrote.

The issue affected a relatively small portion of the approximately 3 million taxpayers in the state, but may make some question the accuracy and security of software like TaxAct. Last fall, Massachusetts decided to forgo its free online tax-filing system and encouraged residents to use commercial software programs. It joined the Free File Alliance , which offers software such as TurboTax for free to people with an income of less than $64,000. Only 2 percent of Massachusetts residents had used the states own system, and officials said at the time that commercial software is more secure.

But in 2015, Massachusetts and Vermont withheld almost 170,000 tax returns to investigate potential identity theft and fraud for taxes prepared through TurboTax. The company temporarily suspend its filing program because of suspicions that identity thieves were filing false returns using stolen identities.

TaxAct itself said a small number of accounts were affected by a data breach in late 2015, according to SC Media, a tech-industry publication. The next year, problems with TurboTax and other software was thought to cause up to 19,000 Vermont residents to pay less than what they owed the state government. H&R Block and Intuit, which makes TurboTax, paid nearly $2.5 million to the state tax agency to cover the arrears of their customers.

Amy Pitter, president and CEO of the Massachusetts Society of CPAs, said national tax software companies tend to wait to the last minute to get updated versions of their programs approved by local tax authorities, which can cause problems for tax preparers. While the TaxAct issue seems like a minor fluke, Pitter said Mass DOR should have been able to detect the mistake.

The more you have automation, the more you need to put in checks to make sure the automation doesnt run away with itself, Pitter said.

See the original post:
Over 2000 Massachusetts taxpayers billed incorrectly due to software error - The Boston Globe