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banking products, such as checking accounts and prepaid cards, according to the NBPCA. What’s more, this tracking will not prevent fraud but only will prompt fraud- sters to utilize alternative disburse- ment vehicles, according to Fauss.
Rather than defining accounts as at-risk—which may not be accurate or effective—the NBPCA supports working with the IRS to get to the root of the problem—stopping the underlying identity theft and verify- ing taxpayer information much earlier in the refund process to catch fraud. For example, the IRS currently matches an employer’s wage data from an electronically filed W-2 form to an employee’s filed tax return in July—well beyond the April 15 filing deadline and long after fraudsters have submitted fraudulent returns and received tax refunds. One of the IRS’s mandates is to issue refunds in a timely
manner. In fact, the IRS is required to pay interest to a taxpayer if it takes more than 45 days past the filing deadline to issue a refund. Unfortunately, correcting these timing issues will require technology investment from the IRS—which is facing budget cuts—as well as other participants in the process, such as employers.
Lack of real-time feedback to
the industry is another issue with the IRS’s current fraud-detection strategies. With real-time feedback, the industry would know whether its own fraud-detection tools and filters are effective or creating false positives. The other benefit of real-time feedback is to stay ahead of the fraudsters, who change their methods as soon as industry tools stymie their efforts.
Although the size of the problem is significant—approximately
$5.8 billion in fraud losses in
the 2013 tax year, according to
a Government Accounting Office report—the GAO also found that the IRS prevented $24.2 billion in tax refund fraud in 2013. One of the primary reasons for the IRS’s improvement in catching fraudulent returns was its work with the in- dustry and NACHA to develop a new ACH Return Reason Code, which the industry can use to sig- nify suspected tax fraud. In the past, when the industry would return tax refund loads because
of suspected fraud, the IRS would often issue checks directly to the fraudster. Under the new process, when the IRS receives a rejected refund from the industry using
the new ACH Return Reason Code, the IRS is alerted to suspected tax refund fraud.
IRS Commissioner John Koskinen announced in June a sweeping new public-private partnership with tax preparation and software firms, payroll and tax financial product processors, prepaid card providers and state tax administrators, which includes identifying new steps to validate taxpayer and tax return information at the time of filing. Under this new collaboration, the IRS created three separate working groups: authentication, information sharing, and strategic threat assess- ment and response. The agency later approached the NBPCA to help establish a new financial services working group to gather input from members of the prepaid card industry involved in the tax refund space.
volume 8 • fall 2015
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