New IRS Rule Limits Direct-Deposited Tax Refunds to 3 (July 7, 2014)
The IRS has announced new procedures, effective January 2015, limiting the number of tax refunds electronically deposited into a financial account or prepaid card account to three, in an effort to combat fraud and identity theft. The limit applies to “bank savings or checking accounts and to prepaid, reloadable cards or debit cards,” the IRS said. Taxpayers will receive a notice informing them the account has exceeded the direct deposit limits, and the IRS will mail any subsequent refunds for that tax year via paper checks.
The new IRS rule may affect taxpayers who opt for direct deposit of tax refunds into accounts shared among several household members, observers say. But prepaid card issuers are unlikely to see much fallout from the new IRS rule because the industry routinely limits the number of direct-deposited tax refunds per account to three or less, Terry Maher, a partner at Baird Holm LLP, tells Paybefore. “This new IRS rule shouldn’t present a problem for most prepaid issuers, which already have policies in place to spot fraud red flags, such as multiple tax refunds into a single account.”
Separately, the National Technical Information Service, under direction from the Department of Commerce, has issued an interim final rule restricting access to the Social Security Death Master File (DMF), to prevent fraudsters from using that data to generate bogus tax refunds. Prepaid card issuers rely on access to the DMF to spot potential fraudsters, Maher notes. But all indications suggest prepaid card issuers will retain necessary access to the DMF under the final rule, expected soon. “We’re cautiously optimistic that the final rule on access to the DMF will not pose problems for the prepaid industry,” he says.