It is that time of year again…tax season. For the every-day consumer, this is either a time of excitement for those of you getting a return or a time of dread for the others that have to pay. However, for those of us in the financial industry, it is a time that we are all placed on high alert. Tax returns have become the #1 IRS scam. In 2014 over $6 billion in tax return dollars were stolen and in 2015 it was over $15 billion.
The IRS and the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) provided a list of red flags to help FI’s recognize tax fraud:
- Multiple direct deposit refund payments going into one member’s account;
- Individuals attempting to negotiate double-endorsed tax refund checks with questionable identification;
- One individual accompanying multiple parties to the credit union to negotiate tax refund checks;
- The same signature/endorsement used on multiple checks, with multiple names;
- An account opened on behalf of individuals who are not present, with the opener being named as having signatory authority and the subsequent activity limited to direct deposits of tax refunds. This activity often occurs when exploiting returns for the elderly, minors, prisoners, the disabled or recently deceased;
- A single individual opening multiple prepaid card accounts in different names, using valid taxpayer identification numbers (TINs) for each of the supplied names and having cards mailed to the same address;
- A personal account where the majority of the transactions are automated clearing house tax refunds (even if this is not tax fraud, the member may be using a personal account as a business account);
- A business account processing third-party tax refunds in a manner inconsistent with its stated business model; and
- For money-services business accounts–a sudden increase in volume involving tax refund checks issued to individuals from across the country.
If a financial institution decides to file a SAR, FinCEN requests that the term “tax refund fraud” be included in the narrative section.
Another tax fraud combating tool is through the ACH network. NACHA (The Electronic Payments Association) and the IRS have teamed up to provide FI’s with a Tax Refund Return Opt-in program. This gives FI’s the right to return suspicious IRS direct deposits using a specific return code (R17). However, FI’s can only use this return code if they have opted in. Click here for more information on how to opt in.