The Dangers of the Split Refund Option

TIGTA has sniffed out another serious IRS problem.  The latest TIGTA report expresses Treasury’s concern with the administration of direct deposit refunds by the IRS.  More taxpayers than ever are taking advantage of this option because it is the most convenient and fast way to get your refund.  But this also happens to be the way many tax refund crimes are perpetrated:

Direct deposit is frequently the payment method used by individuals who attempt to commit filing fraud. Direct deposit provides the ability to quickly receive fraudulent tax refunds without the difficulty of having to negotiate a tax refund paper check. To cash a check, individuals usually have to provide picture identification matching the name on the tax refund check

~ TIGTA Report No. 2012-40-118

Specifically, the concern addressed in this report has to do with the splitting up of deposits into multiple accounts.  The IRS allows refund recipients to specify that the funds be deposited into one, two, or three accounts if they so indicate on Form 8888.  However, this option often invites foul play.  As a way of measuring the magnitude of the problem, TIGTA counted the number of times multiple refunds were deposited into the same accounts.  This method isn’t exactly perfect because there are harmless reasons for multiple deposits, such as in the case of joint bank accounts.   However, even ruling out these benign cases, TIGTA is finding that tax cheats are abusing the split refund deposit option.  For example, some tax preparers are illegally diverting funds to their own accounts to cover their tax help and return preparation expenses.

 
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