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Tax ID fraud is taxing on financial institutions

Kate Randazzo
September 20, 2023
Read Time: 0 min

Understanding tax ID fraud

FinCrime professionals looking to prevent tax ID fraud first need to understand the fundamentals of what is happening and their best recourse for prevention.

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Takeaway 1

Fraudsters file illegitimate tax returns early, hoping people wait to submit their legitimate ones.

Takeaway 2

FinCEN, the IRS, and law enforcement released a series of red flags BSA officers should know about.

Takeaway 3

If you suspect this type of fraud, file a SAR with the term "tax refund fraud" in the narrative.

Seasonal fraud

Beware of early tax ID fraud attempts

Tax season is not only about filing taxes; it's also a peak time for tax ID fraud. Stolen Identity Refund Fraud (SIRF) is a silent but dangerous aspect of the tax world.

Tax ID fraud is the illicit use of someone's details to craft a fake tax return or falsely claim tax advantages. This alarming crime drains an astonishing $5.2 billion from taxpayers yearly. The cunning move by fraudsters is their tendency to file these deceptive returns early. Armed with newly pilfered social security numbers, names, and birthdates, they aim to submit these fraudulent forms before the taxpayers do. Many remain unaware of being victims until they attempt to file their taxes and discover a duplicate submission.

So, what role does a BSA officer play in curtailing tax ID fraud? Beyond shielding clients from scams, BSA officers also spot possible tax return fraud cases. They then report them by submitting a Suspicious Activity Report (SAR). It's worth noting that numerous fraudulent returns are transacted via direct deposits into accounts, potentially within your financial institution.

Staying on top of suspicious activity is a taxing job.

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Here are some warning signs to detect tax ID fraud, as indicated by FinCEN, the IRS, and law enforcement:

  1. Multiple tax refund direct deposits intended for various individuals, but all channeled to one account.
  2. Spotting mule accounts set up chiefly for depositing deceptive returns. Strengthen your new account surveillance to recognize such actions.
  3. Business accounts cashing tax return checks in ways inconsistent with their original business intent.
  4. A business account for a check cashing service handling an unusually large quantity of tax refund checks.
  5. Mismatched signatures on the back of checks or identical signatures across multiple checks meant for diverse individuals.

For a comprehensive list of warning signals, consult FinCEN's guidelines.

Take action

Identifying and fighting tax ID fraud

Exercise due diligence if you encounter transactions with tax refund fraud or dubious activities. Submit a SAR when deemed essential, emphasizing "tax refund fraud" in the narrative section and providing a thorough account of the events. It's also vital to contact your local IRS Criminal Investigation Field Office and apprise them of the SAR.

To summarize, vigilance and proactive measures are paramount in combating the threat of tax ID fraud during the tax season.

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About the Author

Kate Randazzo

Content Marketing Manager
Kate Randazzo is a Content Marketing Manager at Abrigo, where she works with industry thought leaders to create digital content that helps financial institutions better serve their customers. Before joining Abrigo, Kate managed social media and produced articles for Campbell University’s quarterly magazine and other university content initiatives. She earned

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

Make Big Things Happen.