Saying it is unable to reconcile the accounts, the receiver appointed to oversee the dissolution of the Centax-Don Wilkinson tax-collection agency is asking a judge to approve a plan that would allow it to forgo efforts to locate thousands of people who are owed more than $347,000 in tax refunds prior to 2011.
In a recent court motion, the receiver, the Campbell & Levine law firm of Pittsburgh, said it would take numerous people many months to try to determine who is owed money, and even then a significant amount of the funds could not be identified or traced. The firm has proposed instead that the funds be transferred to an account that will be used to pay various creditors who have claims against Centax.
The proposed order also calls for part of an additional $400,000 in tax refunds owed to individual taxpayers to be used to cover a shortfall in another Centax account that held earned income taxes that are owed to dozens of municipalities and school districts statewide.
If approved, the order would affect anyone who is owed a refund from Centax from 2002 to 2010, but who, for some reason, never received the check, or received it and did not cash it. It will not affect anyone who is owed a refund from the 2011 tax year. Those were processed and paid out by Berkheimer & Associates, which took over Centax’s accounts after it ceased operations in August.
John Deremer, a vice president with Berkheimer, said the firm has processed those returns and has a list of all taxpayers who did not cash their 2011 refund checks. Those taxpayers will be reissued new checks.
The handling of the refund account is detailed in a motion filed March 6 in Allegheny County Court that recommends how money held in various Centax accounts should be distributed. Anyone who opposes the proposal has until April 8 to file a response. A hearing on the matter is scheduled for April 9 in Allegheny County Court.
Centax’s downfall caused significant problems for municipalities statewide that counted on the firm to collect and distribute earned income taxes. Several local communities were forced to take out tax anticipation notes due to significant delays in receiving funds they were owed.
Campbell & Levine was appointed as a receiver in November to “wind down” Centax’s operations and issue a recommendation on how to distribute remaining funds. The most recent motion provides the first look into how money owed to individual taxpayers will be handled.
The motion, prepared by attorney Paul Cordaro, describes the “significant challenges” Campbell & Levine has faced as it worked to decipher Centax’s records to determine how much money is owed to individuals, municipalities and school districts.
According to the motion, the refund account was established in 2002 and had a balance of $747,233 as of Feb. 28. That included money that had “built up” over the years from checks that were never mailed out by Centax, or that were never cashed, lost in the mail or returned to as not deliverable.
In the past, any check that was not cashed was turned over to the state Treasury Department, which held the money in its unclaimed property fund. Anyone who is owed unclaimed property can recoup it by filing a claim request with the department.
The problem, Cordaro said, is Centax had not reconciled the refund account since 2008 and had only recently turned over checks dating to 2006 to the Treasury Department as unclaimed property. Given that, reconciling the account would be “practically impossible,” Cordaro said, noting the receiver would have to reconcile approximately 300,000 checks.
Citing that difficulty, Cordaro has proposed that $347,233 of the funds held in the account should not be turned over as unclaimed property to the Treasury Department but instead be placed in an account that will be used to pay the receiver’s fees and other debts Centax owes to various creditors.
“The bottom line it that these remaining funds cannot be identified or traced to a particular taxpayer without devoting a significant amount of time and expense, and even then the receiver believes that a significant amount of these funds cannot be identified or traced,” the motion says.
If approved, it appears the order would preclude any person who failed to cash any check issued before 2011 from ever obtaining the money. Cordaro did not immediately return a phone message Monday. In his motion, he noted his law firm had received fewer than 10 phone calls from taxpayers seeking replacement checks.
The motion also calls for the remaining $400,000 to be split in two ways. Some of the money — the order does not detail the amount — would go to a trust account and be distributed by Berkheimer. Berkheimer could use that money to pay 2011 refunds that are owed, Deremer said.
Another portion of the money would be earmarked to fill a shortage in a separate fund at Centax that held earned income taxes it collected for municipalities and school districts.
According to the motion, that fund held earned income taxes collected for 2011 that have not yet been distributed. The fund had $682,194 as of Feb. 28. The problem, Cordaro said, is records show that a total of $904,850 is owed, for a shortfall of $222,656.
Cordaro’s motion does not allege any misappropriation of funds. Rather, the receiver blames the shortfall on taxpayers who submitted checks that were returned for insufficient funds. Centax, it said, never “blacked out” those checks from data detailing how much was owed to school districts and municipalities.