False Reporting Tax Credits & Refunds

What is missing?

Requirements are described in state Statute 68, Section 205. It might be helpful for those not familiar with the terms to ⁽²⁾ below. Here is the short version, and for the record and shake of brevity, the specifics of these comments primarily apply to the six largest money tax credits--two of which are not on Openbooks and four which have incorrect information substituted.

Section 205 - Confidential Nature of Records and Files of Tax Commission

27. The disclosure of information, as prescribed by this paragraph, which is related to the proposed or actual usage of tax credits pursuant to Section 2357.7 of this title, the Small Business Capital Formation Incentive Act or the Rural Venture Capital Formation Incentive Act. Unless the context clearly requires otherwise, the terms used in this paragraph shall have the same meaning as defined by Section 2357.7, 2357.61 or 2357.72 of this title. The disclosure of information authorized by this paragraph shall include:

1. the legal name of any qualified venture Capital company, qualified small business Capital company, or qualified rural small business Capital company,
2. the identity or legal name of any person or entity that is a shareholder or partner of a qualified venture Capital company, qualified small business Capital company, or qualified rural small business Capital company,
3. the identity or legal name of any Oklahoma business venture, Oklahoma small business venture, or Oklahoma rural small business venture in which a qualified investment has been made by a Capital company, or
4. the amount of funds invested in a qualified venture Capital company, the amount of qualified investments in a qualified small business capital company or qualified rural small business Capital company and the amount of investments made by a qualified venture Capital company, qualified small business Capital company, or qualified rural small business Capital company;

• Non-appropriated spending.
  
• Tax refunds⁽¹⁾. Tax refunds including, refunds for tax credits are missing. One specific example is approximately $60 million in tax refund claims found hidden in boxes in late 2008 and paid in late 2008 and early 2009. An examination of Chaparral Energy's SEC filings reveals Chaparral reported receiving more than $27 million in tax refunds during this period. Chaparral Energy does not appear in Openbooks?
  
• Tax credits
  
  • Missing tax credits include - Small Business Venture and Rural Small Business Venture; used to claim refunds and avoid paying gross production taxes, bank privilege taxes, and insurance premium taxes View. This obviously involves large amounts.
    
  • Holding back reporting - What some mistakenly assumed is due to tax filing extensions. The information required is independent of and not found on returns. Rather the information is reported on separate forms in the same fashion and time frame as employer's W-2 forms, 1099s, etc. and required by January 31, following the year investments were made; to allow those filing returns to have the needed information.
    
    The purpose of economic development programs using tax incentives is to encourage investments. The reporting requirements are related to who received incentives for investing and not how or who used tax credits, which are not always the same.

Both substituting incorrect information, and holding back reporting, prevents the public from seeing how the money was used, who received the money and when the money was handed out. Case in point all information need to report 2007 tax credits on Openbooks was filed with OTC by January 31, 2008. Of the total now found on Openbooks - 10% appeared in Jan 2009, 42% October 2009, and 48% not until just recently. We know that does not include tax credits used for refunds - gross production, bank privilege, and insurance premiums View.

It didn't stop there; key features like providing totals were disabled in the tax credit section of Openbooks. Forcing any interested in knowing the totals to visit manually, and calculated 25 line items on 668 pages, to derive totals.

Requirements are to report information on investments and tax credits taken by investors for the year the investments were made. Reporting requirements are the equivalent of an employer's W-2 and 1099's; and reported to the Tax Commission using separate forms, to reported by January 31, and posted on Openbooks by November 1, the year after investments were made. Note: there is a second form required by April 30 that includes additional information.

Instead of reporting the above as required, tax credits are reported as used, user, amount, and year, which is significantly different and prevents the public from learning who received how much, for which investments.

Factoring in the incorrect information is being reported; the following table demonstrates how tax credit usage reporting was held back for at least two years, as seen with 2007 tax credits. There is no reason to assume all has been reported now. Totals projected are based on extrapolating 2008, using the 2007 model, and 2009 using an average of the 2007 and 2008 models, which results in a more conservative total.

References:

(1) excluding refunds issued for overpayment of taxes.

(2) Small Business Capital Formation Incentive Act 2357.60 thru 2357.65 and Rural Venture Capital Formation Incentive Act 2357.71 thru 2357.76; and Venture Capital 2357.7