Tax Fraud – It’s That Time of Year
Tax Fraud – It’s That Time of Year
It’s that time of year when tax refunds are issued via paper checks and direct deposit into a demand deposit account or prepaid access card account. As the number of tax refunds being distributed through direct deposit has increased over the past several years, so has identity theft and tax fraud. If a financial institution has any suspicion of tax refund fraud or identity theft, a suspicious activity report (SAR) should be filed. When filing a SAR due to suspected tax fraud, ensure to check box 31-Z (other) and insert the words “Tax-Refund Fraud” in the accompanying box. In the narrative, use the same term and provide a detailed description of the activity.
Financial institutions play a critical role in identifying tax refund fraud and FinCEN has identified the following red flags to assist in the identification and reporting of such fraud:
- Multiple direct deposit tax refund payments, directed to different individuals and made to a demand deposit or prepaid access account held in the name of a single accountholder;
- Suspicious or authorized account opening on behalf of individuals who are not present, with the absent individuals being accorded signing authority on the account;
- A single individual opening multiple prepaid card accounts in different names, using valid TINs for each of the supplied names and having the cards mailed to the same address. Credits from tax refunds occur followed by ATM withdrawals and/or POS purchases shortly after card activation;
- Business accountholders processing third-party tax refund checks in a manner inconsistent with their stated business model, processing tax refund checks that are a significant volume when compared to other checks cashed, or a large volume of checks bear the addresses of customers out of state, or the checks are sequentially numbered or within a few numbers of each other;
- Individuals processing third-party tax refund checks through a personal account with no business or apparent lawful purpose;
- Opening of a business account for a check cashing business, which subsequently processes a high volume of tax refund checks for individuals from other states;
- Individuals attempting to negotiate double endorsed Treasury tax refund checks with questionable identifications; and
- Employees of financial institutions may also facilitate tax refund fraud, including tellers who regularly process large quantities of tax refund checks, including one or more tellers during a specific time frame.
For additional information contact the author Anne M. DeFrehn at adefrehn@fosaudit.com.