ACH Tax Refunds: Exceptions, Posting, & Liabilities. Presented by Laura Nelson, AAP, NCP Auditor/Education Specialist

Transcription

1 ACH Tax Refunds: Exceptions, Posting, & Liabilities Presented by Laura Nelson, AAP, NCP Auditor/Education Specialist

2 Audio Handouts Questions

3 Dealing with ACH Tax Refunds: Exceptions, Posting & Liabilities Presented by PAR/WACHA-The Premier Payments Resource Laura Nelson, AAP, NCP Trainer/Auditor or

4 Disclaimer This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only. This document could include technical inaccuracies or typographical errors and individual users are responsible for verifying any information contained herein. The information in this document and discussed during this presentation is the exclusive property of PAR/WACHA. It may not be copied, disclosed, or distributed, in whole or in part, without the express written permission of PAR/ WACHA PAR/WACHA All rights reserved

5 Regulations Green Book The Federal Guide to ACH Posting of IRS Refunds Exceptions Warranties/Responsibilities Identity Theft Agenda

6 Over 108 million tax refunds were issued by the Bureau of the Fiscal Service in 2017 Value exceeds 302 billion dollars Over 80% were via ACH-up 18% since 2010 Average return $2,961 Tax Refunds Source: irs.gov

7 Why do Consumers use Direct Deposit? Faster refund More secure No check to get lost or stolen Convenience No trip to the financial institution Saves tax dollars

8 Direct Deposit of Refunds Refunds can be split between 3 accounts Refunds can be deposited into IRA s More on IRAs later Refunds can also be used to purchase securities and savings bonds

9 Regulations IRS payments follow the NACHA Rules Posting Funds Availability Liability as it applies to the RDFI

10 Enrollment The Green Book 1-9 It is not a permanent election by the taxpayer and must elect Direct Deposit each filing year greenbook/greenbook_home.htm

11 Funds Availability Consumer credits made available to the RDFI before 5:00 P.M. the banking day before settlement date, must be made available to the consumer by the opening of business on the settlement date

12 Posting of a Tax Refund The NACHA Operating Rules state If the account number and the name of the Receiver contained in an entry do not relate to the same account, the RDFI may rely solely on the account number

13 Reliance on Account Numbers The Green Book says: The financial institution s responsibility is to post the Direct Deposit payment to the account indicated on the ACH record As long as the financial institution posts the payment to the account indicated, it has met its responsibility

14 Refund Posts to Someone Else s Account IRS calls to check if funds were deposited to a specific account number The funds were posted to the account number but it is not the correct taxpayer. There are zero dollars in the account FI is not liable as you post on account number and account number only How would the request for information come from the IRS? What is the financial institutions liability if the funds are in the account?

15 Refund Posts to Someone Else s Account The GREEN BOOK says: If the funds are posted to a valid account that turns out to be the wrong account, the financial institution is not liable to the Government for the return of the funds If the taxpayer or the taxpayer s agent gave the incorrect account information, neither Fiscal service nor the IRS will assist the taxpayer with recovering the funds, and the taxpayer is free to pursue civil actions If, however, the IRS made the error, it will make the taxpayer whole It is the Taxpayer/Preparer s responsibility IRS is only responsible if they made a key-entering error

16 Unable to Post Payments must be returned when they cannot be properly posted by the FI If the payment is un-postable and returned the taxpayer will receive a check (Green Book 1-9)

17 Unable to Post If you choose to return the entry if the name and account number do not match you would use R03 No account/unable to Locate Account The account number structure is valid and it passes the check digit validation, but the account number does not correspond to the individual identified in the entry

18 Notification of Change Exception to the NACHA Operating Rules Since a tax refund is a single entry the IRS will not accept a NOC

19 Account Closed If the account is closed the payment should be returned with the Return Reason Code R02

20 Right of Offset A Tax refund CANNOT be used for right of offset if the account has been closed The refund should be returned Account Closed R02 If the account is open and overdrawn, the refund will post and may cover the overdraft

21 What if the Tax Refund is Less than the Amount on the Tax Return? Offset made by Bureau of the Fiscal Service Past due Federal taxes State Income Tax Unemployment compensation debt Child or spousal support Student loan Notice from IRS for federal taxes or Bureau of Fiscal Service Changes made to the tax return Will get notice from IRS

22 Account Holder Deceased If the account holder is deceased the payment still should post as the estate may be entitled to the refund It is not a benefit payment thus not subject to a reclamation

23 Tax Refunds to IRA Accounts The IRS instructions are very explicit in saying that: the taxpayer must first establish the IRA account before requesting the direct deposit and taxpayer must take the responsibility for instructing the trustee for what tax year to apply the refund (if they don't, the trustee may assume it is for the year in which the taxpayer is filing the return). This is the same process that occurs today when a taxpayer sends a check to fund an IRA

24 Tax Refunds to IRA Accounts It's Fiscal Service s understanding that refunds go to IRAs today via an investment account or other similar account that can accept direct deposits The taxpayer or trustee takes the responsibility for transferring the funds to the IRA account for the appropriate tax year The direct deposit option does not change the taxpayer's responsibility to work with the trustee to place the funds in the appropriate account If the item is returned by the brokerage or mutual fund via direct deposit the IRS will send a check to the brokerage or mutual fund

25 IRS2GO mobile app (24 hours after you e-file) (4 weeks after a paper return is filed) (please wait at least four weeks before calling) FI s can call Fiscal Service Philadelphia for questions about IRS direct deposit non-receipts Where s my Refund? (Be sure to have the SSN on the non-receipt on hand)

26 Where s my Refund? Beginning in 2017, if you claim the Earned Income Tax Credit or Additional Child Tax Credit, the IRS must hold your refund until after February 15

27 Identity Theft Identity theft costs U.S. victims more than all property crimes combined. Identity theft remains number one issue reported to Federal Trade Commission. New identity theft victim occurs every 2 seconds More than 1 billion personal records stolen in 2014

28 Tax Related Identity Theft Over1 million suspicious returns identified and confirmed between In 2016 the IRS launched an awareness campaign called Taxes. Security. Together aimed at teaching consumers to protect their financial data The IRS also partnered with state tax agencies and other industry partners to create the Security Summit initiative to improve identity theft protections for individuals and business taxpayers

29 The Results Through September 2016 the IRS stopped 787,000 confirmed ID theft refunds-down from 1.2 million for the same time frame 2015 $6.8 billion total confirmed refund fraud protected through September 2016 It s a good start but tax related ID theft is still an issue

30 Warning Signs Taxpayer learns of a duplicate SSN either from an IRS notice or e-file return rejects IRS notice about additional tax owed, refund offset or collection action when no return filed Taxpayer receives information from an employer unknown to them

31 What s Next? Complete and file IRS Form Respond to any IRS letters or notices Continue to pay taxes, even if by paper Place a fraud alert on credit accounts by contacting one of the three main credit bureaus Close any accounts opened by criminals File a complaint with the FTC

32 How can FI s Help? NACHA s IRS Refund Opt In Program Use R17 Return Reason code

33 R17 Addenda Codes Three codes will be utilized in the Addenda Information Field (Field 7 in the addenda record accompanying an R17 return) to signify: A Name Mismatch [Code = 17 ] ID Theft [Code = 18 ] where the RDFI has been notified or discovers through internal fraud investigation that a refund is related to a case where a taxpayer s identity has been stolen A Questionable Refund [Code = 19 ] whereby account characteristics, account history, investigation and/or other key markers identified through filters or other predetermined means indicates that a refund is questionable, invalid, erroneous, or obtained through fraudulent filings If none of the three characters above are included in the Addenda Information Field, the IRS will default to its Name Mismatch review process for that return entry

34 IRS External Leads Program IRS External Leads Program Definition of an External Lead External Leads involve questionable Federal Tax Refunds from financial institutions and various other sources Leads involve Treasury checks, direct deposits/ach, refund anticipation loans/ checks and pre-paid debit cards

35 Information for your Accountholders The IRS has information on their website on the current tax refund related scams that are being reported to them. FI s could use this as an accountholder education resource

36 You received a tax refund to an account at your financial institution. The name on the transaction doesn t match the name on the account. The person on the transaction has the same last name, but when you look it up by social security number, they have a different account number. What should you do? Case Study What do the NACHA Rules say? Are there any extenuating circumstances?

37 Case Study John and Susan Jones filed their income taxes jointly and signed an authorization for their refund to be deposited to their joint savings account at ABC Financial Institution. Prior to the deposit posting, Susan closed the joint savings account and opened a new checking account in only her name. Three days later the refund comes in and rejects because the account is closed. What should ABC Financial Institution do? What do the NACHA Rules say? Are there any extenuating circumstances?

38 Case Study My Hometown Financial Institution received an IRS tax refund to Jim Fredrickson s account on 3/27. Jim s daughter notified the financial institution a week later that Jim passed away on 3/05 What should My Hometown Financial Institution do? What do the NACHA Rules say? Are there any extenuating circumstances?

39 QUESTIONS

40 AAP Continuing Education Credits Direct Deposit Tax Refunds: Posting & Exceptions This session is worth 1.2 credits

41 Resources PAR/WACHA- The Premier Payments Resource HELP DESK Phone: Toll Free: Fax:

42 Laura Nelson, AAP, NCP Upcoming WACHA events with CBANC Education: Regulation E Disputes Government Payments Overview 2018 Rules Update + Same Day Phase III Reg E vs. NACHA Thurs 2/15 at 1pm CT/2pm ET Wed 2/21 at 1pm CT/2pm ET Thurs 3/8 at 1pm CT/2pm ET Wed 3/21 at 1pm CT/2pm ET