Reviewing our daily currency reports, it was noticed a customer made 2 large cash withdrawals ($7,000 - $8,000), on different days, after receiving 2 separate corresponding ACH credits for income tax refunds. The account is owned by one individual. Researching the ACH credits, one was under our customer's name and the other was not a customer. The Bank does not know who the non-customer is. Since an income tax refund should only be directly deposited into that taxpayer's bank account, what is our next step? We can ask our customer who this was for & why she received the 2nd direct deposit, but what can we do from that point other than tell her this is not allowed by the IRS and not to do it again? She may have given her account number to the non customer who doesn't have a bank account or it could be some sort of tax fraud. We want to know our options before we address this with our customer.

FIN 2013 - A001

You have outlined a good plan; i.e. ask the customer for the details and tell him not to do it again. Then read the FinCEN guidance linked above and decide if a SAR is necessary.

Related thread.

You should certainly question the customer and then could file a SAR depending upon the explanation received. You could also close the account. There was also a FinCEN advisory last week about tax refund fraud; see FIN-2013-A001.

Here is a list of red flags from the advisory that you can print and give to those who may be interested.

Red Flags of Income Tax Fraud

Another IRS tax refund under another individual's name is being presented into this customer's account today. Can we return the ACH credit to the IRS & if so what return reason code would be proper? Can we also consider closing the account? We have not been able to contact the customer to ask for an explanation of this activity.

Yes, You can return it R03 ("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, or the account number designated is not an existing account.")

I'd make a point of notifying the customer of the return.

When I talked with NACHA - you can only use R03 if you return same day. They are working on a pilot program to allow another code with longer return times ...

I would continue to try to contact the customer. It could be innocent (helping family) - to which case you could say "You can't do this & if we see again, we'll close your account".

But it depends on what you know about the customer - if you suspect something bad is going on, close it and contact the IRS.

I have a slightly different scenario that I would like opinions on. A tax refund came via ACH to "Dick and Jane" but the account that it was directed to is in the name of Dick; should I be concerned? It happened a few weeks ago so it cannot be returned but I was wondering anyway.

Not a problem. The IRS warned Dick and Jane about that possibility when they signed the direct deposit authorization form. A financial institution MAY refuse a direct deposit from a joint return if directed to an individual account, but it does not have to. The IRS disclaims responsibility for such a return, and will then send out a jointly-payable check.

Devsfan,
As John said, the instructions put the taxpayer on notice you could send it back in this circumstance. For the same reasons that I would not allow a check payable to H & W to be deposited in H's account without direct evidence of her consent, I would send back an ACH that reflected the same situation.

Back to the issue of fraudulent refunds...I spoke to an EDP vendor last week that is considering making any "mismatch" on names a "non post." (I failed to ask if this was on government payments only.) The bank could override or "force post" the item the next day.

That puts the bank on notice when it might have preferred to remain ignorant, but the size and scope of this problem overrules my sympathies. It would help identify "ghost" customers, fraudsters, and, perhaps, spouses attempting to route joint payments to single ownership accounts.