Jim Henshaw, 50, received a letter last month from the tax department saying that in seven of the last nine years, he failed to file his general excise taxes.

The problem? He didn’t owe any taxes.

The legislative aide estimates that he spent five hours calling the tax department, scouring materials from their office and filling out at least seven forms to show that he had already paid his taxes. He also sought advice from a certified public accountant — luckily, that was free.

“It was really frustrating and time consuming,” Henshaw said. “Anytime you get a letter from the tax department, it’s stressful. They can throw you in jail, if they don’t like what you say.”

Henshaw is one of an untold number of Hawaii residents who received letters from the Hawaii State Department of Taxation in error.

The tax department has sent more than 69,000 letters since 2008 alerting recipients that they did not send in their taxes. The exact number of notices sent in error is unknown. Some lawmakers say that the letters have cost taxpayers hours in unnecessary paper work and significant fees in tax attorneys or accountants.

The letters are just another manifestation of the alleged problems the tax department has had with Montreal-based information technology company, CGI. The state’s $25 million contract with the company is the subject of an upcoming report from the state auditor.

The contracts are being investigated following questions about the effectiveness of the computer program and strife that the project allegedly created within the tax department. Since 1999, the tax department has spent $87.5 million on contracts with CGI. In 2008, the company was tasked with the duty of creating the software to identify the delinquent taxpayers and send those people letters. In return, CGI would receive a third of the collected taxes up to a cap of $25 million, a sum CGI has already reached. But the system is problematic. Besides sending delinquency notices to the wrong people, the system crashes 200 times a day, tax officials said.

The program has had its successes. It brought Hawaii $59 million in delinquent taxes and another $85 million to $90 million in this fiscal year, says the tax department. But some say it has also cost a host of law-abiding taxpayers a lot of grief as they seek to clear their names.

Michael McEnerney, president of McEnerney Shimabukuro Okazaki Fujita CPA AAC, says that he had two clients call about the letters in the last two months, but says he believes the problem is widespread.

“It takes a lot of effort to respond to a non-filed tax return going back many years, ” said. “There is no statute of limitation on whether or not you had to file a return. You have to do prove that you did. How do you do that? How many people really have their returns form 1984?”

In a Senate Ways and Means Committee hearing last month, Committee Chair Sen. Donna Mercado Kim and Sen. Sam Slom reported a significant number of complaints from their constituents who said they had received the delinquent tax letters in error. The senators said that complaints from their constituents show that the letters are a significant problem for Hawaii residents.

But Stanley Shiraki, the tax department’s acting director, told legislators the program is still lucrative for the state.

“Any program is going to have some errors,” Shiraki said at the Senate hearing. “It may have sent to people who don’t owe taxes. But in a lot of cases the fact is that they had not filled out the form as they are required to, and we’re just checking up to see if they’ve missed something. And in a lot of cases they have missed something. That’s why we have the $84 million (that the program brought in).”

Slom, who received a dozen complaints from his constituents, said he too received a notice saying he hadn’t filed a tax form for a company that didn’t exist yet.

“I don’t know how much of a scientific poll it is, but I do know that normally if I get more than half a dozen calls on the same subject, then you can be assured that there are many other people out there that are not calling or calling someone else,” said Slom.

Slom believes that there many more letters out there, but says his constituents might be too afraid to speak out: “They are getting threatening notes from the tax department. They don’t want to do anything that’s going to gain them notoriety.”

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