Posted February 15, 2017NACHA, in conjunction with national Security Summit Financial Services Work Group, which includes members from the Internal Revenue Service (IRS) and state revenue agencies, would like to remind financial institutions of the availability of a new State Tax Refund Opt-In Program. The Opt-In Program is similar in nature, and in addition to the existing IRS Refund Return Opt-In Program; each program (IRS and State) requires RDFIs wishing to participate to sign up specifically with NACHA.
NACHA, with assistance from the Financial Services Work Group, has established a voluntary State Tax Opt-In Program for RDFIs that began March 31, 2016. Opt-in rules define how Return Reason Code R17 may be used by participating RDFIs to return questionable tax refund ACH credit entries originated by the participating states through their respective ODFIs. The new Opt-In Program will allow RDFIs to complete one participation agreement and be able to return questionable returns to any state, through its ODFI, that has also signed up to participate in this Opt-In Program. A current list of participating states and associated ODFIs is maintained on the program page, along with the RDFI participation agreement.
This program is in addition to the IRS Refund Return Opt-In Program, which has been in existence since 2013. This program was also developed to make it easier for financial institutions to return tax refund credits in cases of suspected error or fraud.
These returns will use the Return Reason Code R17, along with three specific “subcodes” that would be used within the Addenda Information Field of an R17 to further specify the nature of the return. These additional reasons would be:
- Name Mismatch between the name on the forward PPD credit entry and the name(s) associated with the Receiver’s account at the RDFI;
- ID Theft, where the RDFI has been notified or believes, as a result of internal fraud investigation, that a PPD credit entry is related to a case where a taxpayer’s identity has been stolen; or
- Questionable Refund, whereby account characteristics, account history, investigation and/or other key markers identified through filters or other means implemented by the RDFI indicate that a forward PPD credit entry deposited to an account(s) is questionable, invalid, erroneous, or obtained through fraudulent filings.
Additionally, it should be noted that the Financial Services Work Group has created an optional file standard for state tax refund credits. The below fields will be formatted as illustrated for the ease of RDFI recognition of these payments.
Company Entry Description – list the IRS assigned four (4) digit MEF code and the phrase TAXRFD.
- State Example - NYSTTAXRFD
- City Example - NYCTTAXRFD
Individual Name – Last Name, First Name, Middle Initial (if provided) and joint First Name, and Middle initial. Display the first 22 characters of name.
- Example – Jones, Steven E & Deborah L = JONES, STEVEN E & DEBO
Individual Identification Number - List the full social security number or the last four (4) digits of the social security number without the dashes
- Full SSN Example – 123456789
- Last 4 SSN Example – XXXXX6789
State External Leads Program: The Security Summit Financial Services Work Group is also working to assist states with the creation of an external leads program, which would complement the R17 Opt-In Program, allowing for states to receive external communications about the questionable tax refunds. These refunds are identified by financial institutions, state and local agencies, tax product groups, brokerage firms, government and law enforcement agencies, and various other sources. 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 number, and is provided by a participating institution on a lead spreadsheet. After researching the lead, the state will work with the submitting financial institution to determine whether the associated funds should be returned to the state.
More information about the State External Leads Program is included on the State Tax Refund Opt-In Program webpage.
Additional information on the State Tax Refund Opt-In Program, including Participating States, can be found on the program webpage at:
Additional information on the IRS Tax Refund Opt-In Program can be found on the program webpage at:
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.