[StBernard] Citizens rebate error blankets state

[Westley Annis]

Citizens rebate error blankets state
1.8 million letters on tax credits wrong 
Friday, January 19, 2007
By Robert Travis Scott
Capital bureau 

BATON ROUGE -- The Blanco administration admitted Thursday that it mailed
out 1.8 million letters with incorrect information about how Louisiana
homeowners can get credits for post-Katrina surcharges on their property
insurance policies. 

Revenue Secretary Cynthia Bridges admitted the mistake after it was noticed
by taxpayers who read the letter. 

The incorrect letters marked the second time in two months that Gov.
Kathleen Blanco's administration mailed wrong financial information to
residents seeking to recover from the nation's costliest disaster. 

In November, administrators of the governor's Road Home program sent out
10,000 preliminary award letters, but quickly had to admit that a quarter of
them were incorrect. The $7.5 billion program is designed to help homeowners
rebuild. 

The latest admission involves a far larger mailing, to every taxpayer in the
state. The administration is considering sending out corrected letters. 

The tax letter contains errors about how and when property owners can get
the tax credit for special assessments they have paid to bail out the
state's insurance pool of last resort, which was tapped for about $850
million in claims after Hurricane Katrina. 


Wrong interpretation 

The first paragraph of the letter gives an incorrect time frame for applying
the tax credit and does not address all the types of surcharges that would
be eligible for the benefit. 

Taxpayers puzzled by the letter have been calling to inquire about the
rules, Bridges said Thursday. She said the problem stemmed from the agency's
misreading of an interagency briefing paper. 

"We erroneously interpreted this," Bridges said. 

The Louisiana Citizens Property Insurance Corp. was created to offer
coverage to homeowners or businesses unable to get insurance from regular
providers. Many homes in storm-prone areas are covered by Citizens. 

The corporation was a fairly new creation when Katrina arrived in August
2005, and had not built up a large reserve of cash to handle a catastrophe.
Private insurance companies in the state are responsible for replenishing
Citizens' coffers and are allowed to collect the money from their customers.


By law, Citizens' claims that can't be covered by its reserves or its own
self-insurance must be paid by these surcharges to all property insurance
policyholders across the state. 

Those surcharges include one-time "regular" assessments. On customers'
insurance bills, they are listed as separate charges for the Coastal and
FAIR plans, the two subsidiaries under the Citizens program. The surcharges
also include "emergency" assessments that will be charged on an annual basis
for 20 years. 


Charges drew outcry 

Insurance companies list the surcharges on the declaration pages of the
premium notices. Companies have differed in when they assessed the
surcharges. 

The Citizens bailout system angered customers, prompting politicians to
offer a giant mea culpa and pay them back with money from the state budget.
In a special session in December, the Legislature, with the support of
Blanco, passed a law that over time is supposed to return all the surcharges
to policyholders. The cost to the state budget for the first year is
estimated at $239 million. 

Most of the so-called regular assessments have been made and some of the
emergency assessments have begun, depending on the insurer. 

Under the new law, any Citizens surcharges paid by a policyholder before
Jan. 1, 2007, can be taken as a tax credit on the 2006 tax year return that
taxpayers began filling out this month. 

The revenue agency's letter is incorrect in saying that the tax credit is
available to people hit with Citizens surcharges "if you paid, between July
1, 2006, and December 31, 2006." Surcharges prior to July 1 also are
eligible for the credit, officials with the revenue and state insurance
departments said Thursday. 

The letter also fails to note that "emergency" assessments can be reimbursed
with a tax credit in addition to the two types of "regular" assessments. 


Which line? 

The revenue department says the tax credit should be noted on Line 9 of
Schedule F of Form IT540 or Form IT-540B, which are the state's main income
tax forms. The versions of state tax forms mailed to taxpayers use the term
"other refundable credits" on Line 9 and do not mention that this is the
line to list the Citizens tax credit. That's because the paper forms were
printed before the law was passed. 

The same forms obtained on the agency's Web site have been updated to use
the term "Citizens" on Line 9, to avoid confusion. 

The agency said the insurance customers declaration page, provided by the
insurer, is the evidence needed to apply for the credit. Taxpayers mailing
in their forms will have to provide a copy of their declaration page listing
the Citizens surcharges. Those filing electronically should keep a copy of
the declaration page for at least three years in case the revenue department
requires the evidence. 

State income tax forms for 2006 are due May 15, although extensions are
possible. 

For policyholders paying Citizens surcharges this year, they will be able to
get a tax credit on their 2007 tax year forms that they file in 2008.
Assessments each year in the future can be credited on income tax forms for
those years. 

For people or businesses who paid the Citizens surcharge but are not
required to file an income tax form, such as some retired citizens and
out-of-state residents who own property in Louisiana, the revenue agency has
special forms available on the department's Web site at
www.revenue.louisiana.gov. Those are form R-540INS for individuals and form
R-620INS for corporations. 

The Louisiana Department of Revenue Contact Center can be reached at (225)
219-0102. 

. . . . . . . 

Robert Travis Scott can be reached at rscott at timespicayune.com or (225)
342-4197