More taxpayers will get their refunds by mail, like it or not

States have been pushing taxpayers to get their refunds via direct deposit for years. Now people choosing that option may be surprised with a paper check instead. South Carolina informed residents this week that, in response to a recent spike in fraud, the state is converting some refunds for people who requested direct deposit to paper checks; Colorado announced a similar move in mid-February. In Connecticut, all first-time filers and all refunds flagged as potentially suspicious will get paper checks, and Alabama announced today that it would also send all first-time filers checks. In Utah, the increase in paper checks is “dramatic,” because requests for refunds on certain types of debit cards are all being issued checks, says Charlie Roberts, a spokesman for the Utah State Tax Commission.

Those examples are “the tip of the iceberg,” says Verenda Smith, deputy director at the Federation of Tax Administrators. “We don’t have a lot of numbers, but there’s more of these conversions going on now, and more that will go on.” Smith says that while state revenue departments have always had the option of flipping a direct deposit refund to paper, it’s being done more publicly now. “It’s a minor inconvenience to taxpayers but very helpful in stopping fraud,” she says, and tax officials don’t get a lot of heat politically for doing it.

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Any legitimate filer surprised with a paper check may never learn why his filing was targeted. In South Carolina, checks will come with a letter saying that the refund was flagged as potentially fraudulent, but that “for security purposes, we are unable to disclose additional details related to this determination.” Colorado’s release about its new antifraud measures, which include issuing more paper checks, notes that “sending a paper check to the taxpayer’s mailing address is intended to prevent criminals from easily diverting fraudulent refunds to their own prepaid, reloadable cards or debit cards.”

South Carolina’s release reminds taxpayers that if you get a refund check but haven’t yet filed your return — a sign that someone has filed a fraudulent return using your name — don’t cash the check. Smith says every year there are people for whom a few hundred dollars in the bank is a big deal, and they’ll cash a check that obviously wasn’t meant for them. That can get messy, she says, because it can turn into a collection issue, and interest can be levied.

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The states’ actions come in the wake of reports of a spike in suspicious state income tax refund claims that started in late January. Minnesota temporarily stopped accepting e-filed returns on Jan. 30. On Feb. 5, Intuit, the maker of TurboTax, stopped transmitting e-filed state income tax returns for 24 hours. Now the FBI and the criminal division of the IRS have investigations under way.

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Source Article from http://finance.yahoo.com/news/more-taxpayers-refunds-mail-not-180234298.html

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