When posting a tax refund to a customer’s account, must the account numbers on the tax refund and the customer’s account match? Must the names on the tax refund and the account also match? For example, if we receive a tax return in a husband’s name with an account number matching his wife’s account (on which he is not a joint owner), should we post the payment or return it?

We believe that banks are required to return payments for tax refunds to the IRS when the account number on the tax refund does not match the customer’s account number, and we also recommend returning tax refunds when the name on the payment does not match the name on your account.

The Treasury Department’s Guide to Federal ACH Payments (the Green Book) provides that it is a bank’s responsibility to “post the Direct Deposit payment to the account indicated on the ACH record.” A taxpayer opting to receive their tax refund via an ACH direct deposit must include their bank account and routing number on their individual tax return (IRS Form 1040), and the corresponding instructions advise that a taxpayer’s request to receive their refund by direct deposit will be rejected if they do not provide a valid account number. Consequently, we do not recommend accepting a tax refund payment that has an incorrect account number. (In that case, the IRS will send the taxpayer a check in place of a direct deposit payment for the refund.)

Although the Green Book does not address instances where the names on a tax refund and an account do not match, the Instructions for Form 1040 indicate that a request for direct deposit will be rejected if “the name on [a taxpayer’s] account doesn’t match the name on the refund, and [their] financial institution(s) won’t allow a refund to be deposited unless the name on the refund matches the name on the account” or the taxpayer is “asking to have a joint refund deposited to an individual account, and [their] financial institution(s) won’t allow this.” While the Green Book does not expressly require banks to reject tax refund deposits due to name mismatches, the IRS’ Form 1040 instructions suggest that you should be doing so.

Additionally, your bank should review any tax refund deposits that appear suspicious for possible tax refund fraud. Your bank should file a suspicious activity report and notify the IRS of suspected fraud, in accordance with the FinCEN guidance on tax refund fraud linked to in our resources below.

For resources related to our guidance, please see:

U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 1, page 9 (“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 to the account indicated, it has met its responsibility. 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 action. If, however, the IRS made the error, it will make the taxpayer whole.”)

U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 1, page 9 (“Payments must be returned when they cannot be properly posted by the financial institution. NOCs [Notification of Change] cannot be used to correct any information. In the instance where a Direct Deposit IRS tax refund is unpostable and returned, taxpayers will receive a check in place of a Direct Deposit payment.”)

Instructions for IRS Form 1040 (Tax Year 2019) (“If you want us to directly deposit the amount shown on line 21a to your checking or savings account, including an IRA, at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union) in the United States: Complete lines 21b through 21d (if you want your refund deposited to only one account), or Check the box on line 21a and attach Form 8888 if you want to split the direct deposit of your refund into more than one account or use all or part of your refund to buy paper series I savings bonds.”)

Instructions for IRS Form 1040 (Tax Year 2019) (“If any of the following apply, your direct deposit request will be rejected and a check will be sent instead. . . . The name on your account doesn’t match the name on the refund, and your financial institution(s) won’t allow a refund to be deposited unless the name on the refund matches the name on the account. . . . [or] You haven’t given a valid account number.”)

FinCEN Advisory FIN-2013-A001, Update on Tax Refund Fraud and Related Identity Theft (February 26, 2013) (“The number of tax refunds being distributed via direct deposit has increased significantly over the past several years and continues to increase annually. In direct correlation, financial institutions may see tax refund fraud activity increase and related suspicious activity may be connected to direct deposit transactions. . . . When completing SARs on suspected tax refund fraud, financial institutions should use the term “tax refund fraud” in the narrative section of the SAR and provide a detailed description of the activity. Due to the time sensitive nature of these transactions, a financial institution may also wish to contact their local IRS Criminal Investigation Field Office to alert them that a SAR has been filed related to tax refund fraud. In order to obtain contact information for your local IRS Criminal Investigation Field Office, financial institutions can call the FinCEN Regulatory Helpline.”)