IRS Releases Information on Emerging Identity Theft Schemes and Refund Credits

Posted February 7, 2018

Recently, the Internal Revenue Service notified the financial services industry of a new scheme being used to fraudulently obtain tax credits through identity theft. As a result, NACHA would like to remind Financial Institutions of the availability of the IRS and State Tax Refund Opt-In Programs.
 
Additional Information
 
The IRS and State Refund Return Opt-In Programs were developed to make it easier for financial institutions to return tax refund credits in cases of suspected error or fraud. Opt-in rules define how Return Reason Code R17 may be used by participating RDFIs to return questionable tax refund ACH credit entries.
 
Opt-In Program returns use the Return Reason Code R17, along with three specific “subcodes” within the Addenda Information Field of an R17 to further specify the nature of the return. These additional reasons are:
 

  1. Name Mismatch; 
  2. ID Theft; and
  3. Questionable Refund 

Participating RDFIs are allowed to transmit these R17 return entries for up 60 days from the Settlement Date of the original PPD credit entry. Participating RDFIs are not required to check for name mismatch when posting.
 
External Leads Programs: Federal and State External Leads Programs also exist, which  complement the R17 Opt-In Programs, allowing for agencies to receive external communications about the questionable tax refunds, including those sent by a third party provider. These leads may involve refund checks, direct deposits/ACH, refund anticipation loans or checks, and pre-paid debit cards.
 
A lead is traditionally defined as personally identifiable information related to suspicious refunds including taxpayer name or account. After researching the lead, the agency will work with the submitting financial institution to determine whether the associated funds should be returned. 
 
More information about the External Leads Programs are included on the associated Tax Refund Opt-In Program webpage.

Resources
 
Additional information on the IRS Tax Refund Opt-In Program can be found on the program webpage at:
https://www.nacha.org/programs/irs-refund-return-opt-program
 
Additional information on the State Tax Refund Opt-In Program, including Participating States, can be found on the program webpage at:
https://www.nacha.org/programs/state-tax-refund-return-opt-program
 
 
RDFIs wishing to participate can access each RDFI agreement via the appropriate program page, along with instructions for submission to NACHA.
 
It is important to note that these are separate programs and participation in one program does not facilitate participation in the other.  

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