The state Department of Taxation has delayed processing thousands of state tax returns while it investigates the most widespread cases of fraud in years.

State Tax Director Kurt Kawafuchi yesterday called the fraud "significant," involving taxpayers and tax preparers who are claiming refunds they are not entitled to.

"We had different schemes in the past, but this year is probably the largest in my four years, in terms of the scope and sources in the scheme," he said.

Kawafuchi said the types of fraud encountered are much more elaborate than schemes of the past.

Last year, a federal jury found tax preparer Richard Basuel and Vivian Soong guilty of conspiracy and several counts of aiding and abetting the filing of fraudulent tax returns. Basuel already was serving a 10-year state prison term for filing fraudulent tax returns.

Basuel was the owner of RB Tax Service and Soong was an employee. They were among five people charged in a 148-count indictment in February 2004 in connection with a scheme in which they falsely claimed $4 million in tax refunds for their clients in 1999.

"The problem this year affects a lot more returns and it's coming from multiple sources," Kawafuchi said. "As soon as we learned about it, as a precautionary measure, we tried to make sure we didn't let any more bad refunds go out the door.

"We don't know for sure if it's tied together, but it seems to be at a more sophisticated level than in the past."

The penalties for tax fraud can range from small civil fines to prison time.

Besides the thousands of returns being examined, the state is running slightly behind last year in processing tax returns, according to the Taxation Department.

But most residents, who properly filled out and filed their returns, should receive their refunds in the next couple of weeks, Kawafuchi said.

The state is required to issue refunds by July 21, or it must pay 8 percent annual interest. The deadline to file the return was April 20.