The Internal Revenue Service reported a decrease in ID theft-related tax refund fraud through the first nine months of 2016, stopping 787,000 confirmed ID theft tax returns totaling more than $4 billion. Credit unions should remain vigilant as they are in prime position to identify tax refund fraud impacting members based on the methods for issuing refunds – via ACH credit or check.ID theft-related tax refund fraud involves fraudulently filing tax returns under another person’s name and Social Security number. Each year, credit unions and credit union members report these schemes impacting them even though the IRS has made significant progress in combating this type of fraud. Despite the encouraging trend, credit unions should not become complacent as taxpayer identities continue to be stolen in a number of ways including through data breaches and phishing scams. Since you are on the receiving end of the transaction, you can help combat this fraud by watching for these red flags:
- Multiple tax refunds deposited to a member’s account
- Incoming tax refunds via ACH credit where the name does not match the
- account number
- Suspicious presentment of refund checks (e.g., double-endorsed checks), or
- a large number of refund checks deposited to a business member’s (e.g., a
- check cashing business) account
With many tax refund fraud cases involving ACH (direct deposit), you should also
be familiar with the rules and guidance on ACH transactions, particularly:
- Credit unions are allowed to post incoming ACH tax refunds only using the account number (there is no requirement to match the name on the account)
- If you become aware of an ACH tax refund being misdirected to the wrong account, you are required to notify the government, which can be accomplished by returning the ACH entry using the return reason code, R03 (No Account/Unable to Locate Account)
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