To stop tax fraud, we need all hands on deck

Each year, all Americans, regardless of income, geographic location, gender, or age, are required to file their paperwork with Uncle Sam by April 15 to determine whether they owe additional taxes or will receive a refund. For those eagerly awaiting a tax refund, prepaid cards are a convenient way to receive, hold, and use those funds.

Prepaid cards offer many advantages to consumers. For one thing, they often allow you to receive your refund faster than other payment methods, especially if you already possess a card. Additionally, they prevent the possibility that your refund check will get lost or stolen in the mail. Also, for the many Americans that do not have a traditional bank account, prepaid cards provide a safe place to store and use funds, while avoiding additional fees for alternative financial services such as check cashing.

{mosads}Unfortunately, in recent years, tax season has also become known for an increase in financial schemes and fraudulent activity. It is becoming increasingly common for criminals with access to individuals’ personal data to file fraudulent tax returns in their names and steal the refund generated from the filing. Large-scale data breaches and widespread phishing programs have only increased the availability of stolen personal identification information, which can be illegally used for fraudulent tax filings.

The prepaid industry is committed to protecting taxpayers and has already put in place a number of security measures and controls aimed at protecting consumers. Before a prepaid card is eligible to receive a tax refund, the cardholder must register the card by providing identification information and/or credentials that are then verified by the provider. Moreover, providers screen direct deposits for the appearance of fraudulent activity, deny cards to questionable applicants who cannot pass customer identification procedures, and report suspicious activity to law enforcement.

As an industry, we are also working with federal and state agencies, tax refund service providers, and consumers to minimize the amount of stolen identity tax refund fraud. Only through collaboration among the key constituents in the tax ecosystem can we put appropriate safeguards in place at every level to catch fraudsters and keep fraudulent tax refund proceeds from falling into their hands.

For all of the above reasons, the prepaid industry is participating in the IRS Security Summit task force, which is dedicated to identifying and mitigating stolen identity tax refund fraud. The task force, made up of representatives from the IRS, state revenue or taxation departments, and industry stakeholders, is working to further develop new techniques and practices that will better protect consumers.

Discussing everything from improved and uniform authentication practices to the establishment of an information sharing and assessment center (ISAC), the Security Summit aims to enhance security, mitigate fraud threats, and track trends among the public sector. Given the advanced technological capabilities of criminal hackers, enhancing cyber security is a priority. The ease of accessing stolen personal identification information is the single largest factor leading to the increase of fraudulent tax refunds.  

Through the IRS Security Summit task force, we are working with the states to create a uniform Automated Clearing House (ACH) tax refund file format to better identify each state tax refund and develop a uniform process to facilitate the return of fraudulent funds. With a common ACH file naming structure in place, prepaid card providers will be aided in their ability to identify state tax refund deposits and apply an enhanced review process to minimize stolen identity refund fraud and enable the return of fraudulent tax refund proceeds to the states. 

It is also critical that consumers understand and guard against the identity theft that enables this type of fraud. Our association and its members provide education and tips to consumers on how to identify problems and avoid being a victim of financial fraud.

We are proud of the work we are doing to protect taxpayers and look forward to continue working together with the IRS and the states to find new, innovative, and effective ways to protect American consumers from tax fraud.

Fauss is the president and CEO of the Network Branded Prepaid Card Association (NBPCA).