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The state of Michigan faces a class-action lawsuit that claims it illegally seized federal and state income tax refunds from potentially thousands of workers who had filed for unemployment claims.

The lawsuit, filed Wednesday , takes aim at the Michigan Unemployment Insurance Agency.

The lawsuit states the UIA’s computer fraud detection system that labeled hundreds of claims as improper is to blame.

Jennifer Lord, an attorney for Pitt McGehee Palmer & Rivers who filed the suit, said the state laid off workers in the UIA and replaced them with the automated machines.

“Unfortunately, the machines are hardly substitutes for humans as they can’t assess whether a detected discrepancy in a claim is an innocent mistake or the product of fraudulent conduct,” Lord said.

Claims found to be fraudulent resulted in the seizure of the individual’s tax returns to recoup money distributed through benefits, according to the lawsuit.

A spokeswoman for the UIA on Monday declined to comment on the lawsuit.

“Currently, the agency has not seen the lawsuit and is therefore unable to comment on its specifics,” spokeswoman Lynda Robinson said.

Robinson in a statement defended the agency’s use of the automated system to detect fraud.

“The agency developed its automated system in an effort to modernize its operations, creating a fully integrated unemployment insurance system that shares data across functions in real time, eliminates manual, labor-intensive processes for staff, and provides ease of use for employers and claimants,” Robinson said.

Robinson also listed the “rights and responsibilities” of customers filing for unemployment, including information about the automated system, submitting for benefits, how to appeal and penalties.

Robinson also said the agency offers 15 “Problem Resolution Offices” throughout the state, as well as several Unemployed Worker Seminars. The first seminar is Saturday in Detroit, Robinson said.

But Lord, the attorney, said anyone who applied for and received unemployment benefits for the past six years is a potential target of the agency’s faulty automated system. The refund seizures have become an economic hardship on those depending on the payments, she said.

The lawsuit filed in the Michigan Court of Claims seeks economic damages in the amount equal to seized tax returns and an order declaring the agency’s automated decision-making illegal.

lfleming@detroitnews.com

(313) 222-2620

Twitter:@leonardnfleming

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