During a review of account activity- check cashing service- I was surprise to see that within a 6 week timeframe 54 federal tax refund checks had been mailed to the same PO Box in our town and cashed by our customer- the check cashing service. Of the 54 checks, 36 had the same individual named as the second payee-not small amounts!! The only info i have on the individual is the name and mailing address (PO box). Should i list our customer as the suspect, and provide what info i have on the refund checks in the narrative? I have no reason to believe that our customer is involved in the possible tax fraud but now we do have major issues with this customers.

If you suspect that your customer is complicit in tax fraud, include your customer as a suspect on the SAR. If you think your customer is innocent, don't list the customer as a suspect (list the name you found on multiple checks as the payee in any event), and put your customer (the check cashing service) in the narrative. Knowing that the check cashing store is at least involved will be helpful to law enforcement, because it gives them a focus for an investigation.

I imagine you are thinking what I am thinking -- how could the check cashing service not see the payee pattern on those checks?

I hope you have a large cash reserve in another account set aside for this client in the event of significant chargebacks. Otherwise, be prepared to take a large loss when the client removes their money from the bank. Been there, done that.

Thanks John and BrendaC.

If a IRS refund check shows "Pay to the order of Mickey Mouse (on line 1)Minnie Mouse (on 2nd line) do Mickey and Minnie equally own the funds. Was this a joint tax return?

IRS refund checks would be laid out like this:

Mickie Mouse &
Minnie Mouse
ADDRESS

Both endorsements are required for negotiation, or the check can be deposited without any endorsement into Mickey and Minnie Mouse's joint account.

It would have been a joint tax return to result in a jointly payable check.

Thanks John. There is no "&"- just 1 name on first line and 1 name on 2nd. There is an endorsement for each. I have been able to determine that the 2nd name is actually the name of a tax preparer- located down the street from our check cashing customer. The checks appear to be for a joint return filed on behalf of the tax preparing individual and the 2nd individual. But we would have 54 tax returns filed for this one individual!

Is the tax preparer the same for each of the items? If so, this is sounding really bad. Could be either the tax return is for someone who can't get a deposit account - or the tax payer isn't aware that the tax preparer is also on the return.

Oops - just read that all checks have the same preparer. I'd definitely file a SAR - and quickly.

You might want to call an IRS agent directly - it might be something similar to this:


Tax Preparer Pleads Guilty to Stealing Refund Checks
Los Angeles (January 7, 2010)

By WebCPA Staff

A San Fernando tax preparer has pleaded guilty to charges that she filed false tax returns and stole her clients’ refund checks.

Rosa Isela Naranjo, 34, operator of Irma’s Tax Service, admitted in her plea agreement that she falsified information on her clients’ tax returns in order to generate fraudulent tax refunds and to underreport her clients’ tax liability to the IRS.

Naranjo admitted that, from 2005 to 2008, she prepared false income tax returns claiming refunds based upon inflated deductions for medical, mortgage interest, and property tax expenses, as well as business deductions. In addition, Naranjo claimed credits for dependent care, residential energy, and education to which her clients were not entitled. Naranjo admitted filing 28 income tax returns on behalf of 16 clients fraudulently claiming more than $90,000 in refunds.

Naranjo also admitted that she stole the tax refund payments of 10 of her clients by advising them that they did not qualify for a tax refund and showing them tax returns that did not claim a refund. Naranjo admitted that she filed tax returns on behalf of the 10 clients claiming inflated tax refunds without their knowledge. She then diverted the refund payments she received from the IRS to herself, using the proceeds to pay for her mortgage and make purchases at grocery stores, restaurants and gas stations. In total, Naranjo admitted she stole over $61,000 in checks payable to her clients, of which her clients were entitled to receive approximately $22,903 as legitimate refunds.

Thanks Randy. That's the case I was referencing, but didn't know where to find it. You're always on top of things - and I for one appreciate it.

Thanks Duchess and Randy. That's exactly what i think is going on but being a compliance person i am somewhat suspicious- usually justified.
Thanks to everybody who took time to reply!

More questions. I contacted the local FBI office. I wasn't sure who to contact at the IRS and having worked with some of the local agents i thought they would know exactly who to contact at the IRS- not sure that will happen. I talked to an agent that i haven't really worked with in the past and she thinks that maybe the checks are payable this way because of refund anticipation loans. This just seems strange to me. Who do i call at the IRS to find out more about the RAL and how that might change the named payee????

You have enough information for your SAR without researching it to the bottom of the well...I encourage you to file it and go on to what's next. The people who might be interested in the SAR (IRS CID) will know whether the checks are suspicious.

Thanks Ken. I have filed so I'm ok there. I was just concerned about being criticized for not notifying the appropriate law enforcement. But you're right, I've done what i can & I'll move on.
Thanks again.

I received a call from local FBI office. They have been in touch with the IRS and an IRS agent will be contacting me. They are interested in this activity. The SAR is on the system so the FBI agent has it. I want to make sure that I know what i should communicate to the IRS and what, if anything, I will need from the IRS agent. As long as I verify the individual is an IRS agent I can provide them with a copy of all SAR supporting documentation- RIGHT?

They have a right to request the supporting documentation for the SAR that you filed. I suggest that you get the request in writing or, if in person, you verify and record the requestor's ID info.

Correct. Law enforcement does not need a subpoena to be given a SAR and/or the supporting documentation. If I recall correctly, supporting documentation is considered "filed" with the actual SAR. However I recommend you take Devs advice and get a copy of the ID of the person in front of you. Personally, I always call the office of the agency and verify that the person requesting the documentation is who he/she appear to be.

Thanks so much to both of you for taking time to respond to my question!