Allowing taxpayers to split their refunds between different accounts increases the risk of fraud, the Treasury Inspector General for Tax Administration has said.
It said that in calendar year 2011 over 842,000 taxpayers opted for a "split refund” option, but found that more than 65,300 bank accounts had multiple direct deposits, accounting for more than 949,000 refunds for approximately $1.6 billion.
According to TIGTA, current IRS processes to ensure the accuracy of direct deposit information are not sufficient, which increases fraud potential.
The IG identified over 4,400 bank accounts listed on tax return preparers’ personal tax returns that had multiple direct deposits, and over 202,000 refunds for more than $309 million were sent to these bank accounts.
TIGTA said that could mean tax return preparers are diverting clients’ refunds or portions of refunds to their own bank accounts to pay tax preparation fees or for other reasons.
Management agreed to establish controls to identify tax return preparers and IRS employees who potentially divert direct deposits to their own bank accounts.