New details have emerged in the case of 29-year-old, Florida resident Ramon C. Blanchett. Blanchett received a $980,000 tax refund check from the IRS in 2017 after claiming he had withheld $1 million from a $17,000 income. How did this happen?
Blanchett finds himself at the center of the year’s oddest tax story since his princely refund made recent headlines. A story reported by The New York Times says the Tampa resident filed a W-2 from Bridges Nursing and Rehabilitation showing $17,098 in wages and $1 million of federal income tax withholding. To make matters more confusing, new evidence shows that his actual income from the nursing home was just $2,098. Blanchett received his tax refund check and deposited it at SunTrust Bank. The bank froze his assets before refunding them in the form of a cashier’s check. Blanchett then deposited the funds in multiple accounts at Grow Financial, where they remained until the IRS caught on.
The IRS, Bridges Nursing and Rehabilitation, SunTrust, and Grow Financial all refused to comment on the NYTimes‘s story. However, we can glean information about it based on our knowledge of the tax system.
How Faulty Tax Forms Slip through the Cracks
Why didn’t somebody notice this $1 million discrepancy before the check reached Blanchett? Since the IRS refuses to comment, we don’t have all the answers. However, we know the first step.
“If your income is under $100,000 and you have no dependents, then you can fill out a special tax form that just uses the standard deduction,” said Dr. Michael Finke, Professor of Personal Financial Planning and Director of the Retirement Planning and Living Consortium at Texas Tech University. “It’s called a 1040EZ and it really is easy to fill out; there’s no need to go to a tax preparer. If your income is below $58,000, you can even go directly through the IRS free file online system, type in a few numbers, and get your refund direct deposited in a week or so. Free file is the way to go for most lower- and middle-income American taxpayers.”
So, how did this large tax refund check get issued? Basically, Blanchett prepared his tax form, without anyone or a tax preparer double-checking the information, and the incorrect W-2 went on its way to the IRS along with his 1040 tax form for 2016. Then, according to the NYTimes report, the IRS’s refund processing system failed to flag the $1 million refund despite its size. The reason remains unknown. Had the system flagged the refund, it would have prompted an IRS agent to investigate the refund check and stop payment.
Common Withholding Discrepancies
According to Dr. Finke, a full 35 percent of Americans overpay their federal taxes every year by $500 or more. This amount often relates to your employer withholding taxes from your paycheck every month. “But you choose how much money is withheld every month,” Dr. Finke said. “If you find that you’re consistently getting a big refund, you can change your W-4 form, which tells your employer how much to set aside from a paycheck.”
“But the reason so many Americans pay too much in taxes is because they don’t itemize when they should,” Dr. Finke said. He cited state and local income taxes, mortgage interest deductions, property taxes, and charitable donations as the largest itemized deductions available to most Americans. But keep in mind, since many tax laws have changed for 2018, it falls upon the tax payer to be up-to date with what is legally acceptable to claim.
Ramon Blanchett believed he had come into $980,000 in 2017, but in less than 18 months, the government seized his assets and reclaimed the leftover money. By consulting a tax agent about discrepancies and properly itemizing deductions, Americans can avoid dire financial straits—or a courtroom.
Dr. Michael Finke, Ph.D., contributed to this article. Dr. Finke is a Professor of Personal Financial Planning and Director of the Retirement Planning and Living Consortium at Texas Tech University, where he leads the doctoral program—considered the premier academic program in financial planning.