Jobless get help in seized tax refund suit

Leonard N. Fleming
The Detroit News

A former Gov. Rick Snyder appointee on a state board that hears appeals of unemployment benefit eligibility will help in a lawsuit challenging the seizure of thousands of federal and state income tax refunds of workers who filed jobless claims.

Neal A. Young, who was a commissioner until last summer on the Michigan Compensation Appellate Commission and has a history as a lawyer representing employers against false employment claims, is expected to play a key role in helping root out erroneous cases by the Michigan Unemployment Insurance Agency, which dispenses unemployment benefits.

The state seized the funds after claiming some Michigan residents who filed for unemployment benefits received the funds erroneously based on the state’s new computer fraud detection system.

Young of Grand Rapids and who was first appointed by Gov. John Engler in 1994 to the Michigan Employment Security Board of Review, could not be reached for comment. Jennifer Lord, an attorney for Pitt McGehee Palmer & Rivers, which filed the suit, said his input will be invaluable to the case.

“He’s so upset by this process that he’s going to join our legal team and provide the background, the insight, the individual examples of these thousands and thousands of cases that he saw and that he fought back against on an individual basis over the past two or three years since the computerized system started,” Lord said.

“He’s really putting himself out there.”

In a statement, Young said, “As a commissioner, I fought the type of UIA abuse detailed in this lawsuit on a case-by-case basis. Now that I’m in a better position to help, I look forward to working with the lawyers from Pitt McGehee Palmer & Rivers to end the agency’s unconstitutional practices and illegal tax refund seizures once and for all."

The announcement comes as The Detroit News obtained an Oct. 1 memo by the U.S. Department of Labor “to address an unacceptably high improper payment rate” by state workforce agencies across the country. It warns officials at Unemployment Insurance programs to make determinations of overpayments of fraud under an automated system unless receiving human input.

“While states have broad authority and are strongly encouraged to use a variety of methods to prevent, detect and recover improper payments, states also must ensure that individuals’ rights are protected,” said the memo, written by Portia Wu, an assistant secretary with the federal Labor Department.

“States may not make determinations of overpayments and/or fraud using automated systems without the input of agency staff.”

The UIA switched to the computer system from real people reviewing unemployment claims around 2013. That’s when the attorneys and free legal aid clinics began to receive complaints about returns being snatched and causing serious economic hardship on to those depending on receiving the money, she said.

According to the class-action lawsuit filed last month, unemployment benefit claims found to be fraudulent resulted in the seizure of the individual’s tax returns to recoup money distributed through benefits.

Lawyers said their clients’ claims are bolstered by a memo in May by a University of Michigan professor and the general manager of the Michigan Unemployment Insurance Project that contends the UIA “established” 26,882 fraud cases in 2014, totaling an all-time high of $56.9 million — five times the typical number of fraud cases and twice as many as in 2012.

The agency could not be reached for comment. Last month a spokeswoman defended its use of the automated system to detect fraud.

The agency determined last last month that the lead plaintiff in the lawsuit, Grant Bauserman, did not illegally receive unemployment benefits. His lawyers, however, said the state did not say whether it would return his seized income tax money totaling thousands.

Anyone who applied for and received unemployment benefits for the past six years is a potential target of the agency’s automated system.

Wu’s letter reminded states that they must “conduct an investigation before issuing an official determination that an overpayment has been made” and that investigators must gather all “relevant” information such as supporting documents and statements from the individual or others.

“In addition, an individual must be given an opportunity to be heard, timely notice of the interview and an opportunity to present evidence,” her letter states.

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