Tax ID Fraud is Taxing on Financial Institutions

Tax season is well underway and with that comes a little lesser-known, but equally as important season: Tax Identity Theft Season or Stolen Identity Refund Fraud (SIRF).

Tax ID fraud or tax return fraud is the use of someone else’s personal information to file a fraudulent tax return or claim tax benefits. This type of fraud costs the nation’s taxpayers an average of $5.2 billion annually. One of the biggest problems with this form of fraud is that fraudsters file these illegitimate tax returns early, armed with a fresh trove of stolen social security numbers, names and dates of birth. Their goal is to get fraudulent tax returns submitted before the actual person submits theirs. Most people do not know they are a victim until they go to file their taxes and are informed they have already been submitted.

As a BSA officer, what is your role in preventing tax ID fraud? Besides protecting your customers or members from being scammed, you have a role in identifying potential instances of tax return fraud and notifying the government by filing a Suspicious Activity Report (SAR). Most of these fraudulent returns are issued via direct deposit into accounts that could quite possibly be held at your financial institution.

Here are a few red flags to look for when identifying tax refund fraud, according to FinCEN, the IRS and law enforcement:

  1. Look for multiple direct deposit tax refunds payments made to multiple people but all deposited into the same account.
  2. Identify mule accounts established to facilitate fraud. These consist of accounts that are opened with the sole purpose of depositing fraudulent returns. Ensure your new account monitoring processes are sufficient for identifying this type of behavior.
  3. Business accounts processing tax return checks in a manner that differs from their initial stated business.
  4. Maintaining a business account for a check cashing business that processes a high volume of tax refund checks.
  5. The signature on the back of the check doesn’t match the ID of the person conducting the transaction or the same signature is used across multiple checks written to different people.

Read the full list of red flags from FinCEN here.

If you do find a transaction or transaction(s) that could possibly fall under tax refund fraud, or is suspicious in nature, do your due diligence. If necessary, file a SAR and use the term “tax refund fraud” in the narrative section with a detailed description of the activity. Additionally, contact your local IRS Criminal Investigation Field Office and alert them that a SAR was filed around tax refund fraud.

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