A nearly completed review of backlogged tax returns shows that seven thousand people who did not know they had overpaid their taxes are due refunds that add up to $2.3 million, the Revenue Department's new secretary told lawmakers today.

Secretary David Hoyle, a former state senator from Gaston County, told them that the department has cleared the backlog of flagged items from individual tax returns. He told them they will need to pass legislation next year in order for the department to return the money.

The N.C. Department of Revenue is on track to clear by year's end a backlog of unprocessed tax returns that is expected to lead to more than a million dollars in refunds to taxpayers who did not realize they had overpaid their taxes.

But Revenue officials may be risking the assessment of roughly $51 million in current taxes, and the collection of roughly half that, by devoting the manpower to whittle down the backlog. That's the estimate they gave as Gov. Bev Perdue was developing a plan to tackle the backlog.

Revenue Secretary Kenneth Lay said that since the governor has ordered the backlog to be cleared, his staff will work six days a week to get the job done by the mid-December deadline and then jump back to the assessment and collection of taxes with the goal of getting them caught up by the end of the fiscal year.

Lawmakers will be counting on those revenues in yet another tough budget year.

"We're going to do our best to get it all done with the resources that we have," Lay said in a recent interview. "I mean there's really no other way to do it. We're all stretched."

The potential tax collection delays don't deter Perdue from her directive to clear the backlog as soon as possible. Her communications director, Chrissy Pearson, said it's a matter of principle. The money belongs to the taxpayers, Pearson said, and for some it could help in a big way.

"We recognize that it could make the difference in that person going to the doctor or not," Pearson said.

The backlog, and a controversial policy change intended to help reduce it by eliminating the department's responsibility for making refunds that were outside of the three-year statute of limitations, were not known to the public until we obtained internal e-mails from the department last month.

State tax authorities are offering a compromise to online retailers that don't charge charge the state sales tax to their North Carolina customers.

The N.C. Department of Revenue said this morning it will forgive all back sales taxes and penalties to businesses that sign an agreement by Aug. 31 to start charging customers the sales tax.

"We are going to be asking quite a number of them to participate in the program," said revenue Secretary Kenneth Lay. "We have positive indications that several will sign up."