Compliance Blog

Written by JiJi Bahhur, Regulatory Compliance Counsel

The IRS has developed a comprehensive strategy designed to address and focus on prevention, detection, and resolution of tax-related identity theft crimes.  In furtherance of this strategy, it is critical to identify tax refund fraud and the methods used to carry it out.  FinCEN has issued an Advisory to assist financial institutions with identifying tax refund fraud and reporting the activity through filing a Suspicious Activity Report (SAR). 

With the growing number of tax refunds being distributed as a direct deposit, financial institutions may see a significant increase in tax refund fraud.  FinCEN, in conjunction with the IRS and other law enforcement, has identified certain red flags to assist financial institutions with the identification of potential tax fraud. 

For a list of those red flags, see the Advisory. 

As required by 31 CFR § 1020.320, if a financial institution “knows, suspects, or has reason to suspect that” a transaction conducted or attempted by, at, or through the financial institution involves funds derived from illegal activity or an attempt to disguise funds derived from illegal activity, the financial institution should file a SAR.  The Advisory notes that when completing a SAR for suspected tax refund fraud, the term “tax refund fraud” should be used in the narrative to describe the activity. 

***

Speaking of tax refunds, just a friendly reminder that the deadline is soon approaching for filing your taxes this year.