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Government watch
Tag Team: IRS and Industry Fight Tax Refund Fraud
The LegisLaTion siTuaTion
Lawmakers in both chambers of the U.S. Congress have proposed bills aimed at combating identity theft tax refund fraud. Some of the proposals—such as the Identity Theft and Tax Fraud Prevention Acts, versions of which have been put forth in both the House and Senate—have targeted prepaid products, which are sometimes used by fraudsters to receive fraudulent refunds. However, many industry observers argue that such an approach misses the point and unfairly limits consumers’ refund options, especially for those without a traditional bank account.
A more promising legislative strategy might be found in a House bill intro- duced in October by Rep. James Renacci (R-Ohio). Titled the Stolen Identity Refund Fraud Prevention Act, Renacci’s proposal does not single out prepaid in its plan to combat tax refund fraud. Instead, it calls for stiffer penalties for those using stolen identities to receive fraudulent tax refunds, including up to ve years in jail and a ne of up to $250,000. The act also would increase protection of Social Security Numbers on tax-related documents, require the IRS to notify victims of tax-related identity theft and provide a central point of contact to support ID theft victims.
Using technology to create strategies for identi cation
is the key. [Third- party veri cation specialists] are doing great work by creating more tools for us to de- tect and investigate potential fraud
or abnormalities.
—Paul Landry, The Bancorp
measure the agency already o ers taxpayers who’ve previously been victims of ID theft fraud. Expanding the PIN safeguard to more taxpay- ers could make it tougher for ID
thieves to le fraudulent returns, the agency said.
On the private sector’s end, it’s vital that prepaid providers ensure they’re constantly evaluating their customer identi cation programs (CIP) to ensure their processes are as up-to-date as possible to com- bat fraudsters’ evolving techniques. “Our risk models evaluate a wide array of applicant characteristics and account behaviors,” notes Sorbe. “Those models are in a constant state of revalidation as
we analyze cardholder behavior and attempt to isolate card cre- ations that may be related to the receipt of a fraudulent tax refund.”
The NBPCA recommends prepaid providers be on the lookout for potential signs that could indicate a prepaid card is being used for ID theft tax refund fraud, such
as requests for expedited card delivery, address change requests after a card is purchased and cards for which a tax refund is the rst deposit. The association also recommends the use of veri cation providers to develop fraud alert and monitoring protocols.
“Using technology to create strategies for identi cation is the key,” says Landry. Third-party veri cation specialists “are doing great work by creating more tools
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