news-record.com

RALEIGH (MCT) -- About 7,000 people who unknowingly overpaid their state income taxes years ago are starting to get checks from the state Department of Revenue. But they may not have a clue why -- and the department isn't going to provide an explanation.

"It's just going to be sort of like manna from heaven," Revenue Secretary David Hoyle said.

The checks represent the end of a controversial practice that allowed the department to quietly accrue $2.3 million in overpayments from taxpayers from as far back as the mid-1990s.

The department had long struggled with a backlog of tax returns that its computer system had flagged for errors, including possible overpayments.

Typically, staff would confirm the overpayment and send a refund -- no matter how old the overpayment was.

But two years ago, the department took a different tack. Citing a change in state law in 2007, the department decided that it was no longer on the hook to visually review flagged returns that were more than three years old. Those returns, the department said, were now beyond the state statute of limitations.

The News & Observer revealed the change in practice last year, after a public records request forced the revenue department to release records about the backlog.

Some in the department resisted the change, the records showed, because they knew it would mean the department would be keeping money that belonged to the taxpayers.

Gov. Bev Perdue said she was "incensed" upon learning about the backlog and the change in practice from The N&O's reporting.

She immediately ordered the department to clear the backlog, which ultimately showed how much the department had kept and from how many taxpayers. Lawmakers who sponsored the 2007 law said they did not intend for the revenue department to use it to keep overpayments.

Perdue also accepted the resignation of the previous revenue secretary, Kenneth Lay, who had said that the governor's staff approved of the change in practice. Perdue then appointed Hoyle, a former state senator from Gaston County.

Last month, legislation sailed through the legislature to outlaw the practice and return the overpayments. Perdue signed it shortly after, but she did not publicize the signing.

Hoyle said the department is paying the money back, plus 5 percent interest. He said the department thought about providing an explanation along with the check, but the staff struggled to find a way to explain it.

"It would cost some money to do that, and we don't quite know what to say," Hoyle said.

Those who get a revenue check and aren't sure why can call the department for an explanation at 877-252-3052.

Hoyle said his staff doesn't expect a lot of phone calls.

"People will be afraid to call because they'll think we made a mistake and want it back," he said.