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Direct Deposit Limits

posted Nov 10, 2014, 10:02 PM by Zaher Fallahi

           In an effort to combat fraud and identity theft, new IRS procedures effective January 2015 will limit the number of refunds electronically deposited into a single financial account or pre-paid debit card to three.  The fourth and subsequent refunds automatically will convert into a paper refund check and be mailed to the taxpayer’s address.  Taxpayers also will receive a notice informing them that the account has exceeded the direct deposit limits and that they will receive a paper refund check in approximately four weeks if there are no other issues with the return. Taxpayers can track their refunds at Where’s My Refund?


           The majority of taxpayers will not be affected by this limitation, and the IRS encourages taxpayers and tax preparers to continue to use direct deposit. It is the fastest, safest way for taxpayers to receive refunds. This is designed to prevent criminals from easily obtaining multiple refunds. The limit applies to financial accounts, such as bank savings or checking accounts, and to prepaid, reloadable cards or debit cards.  This limitation may affect some taxpayers, such as families in which the parent’s and children’s refunds are deposited into a family-held bank account. Taxpayers in this situation should make other deposit arrangements or expect to receive paper refund checks.

           The new limitation is intended to protect taxpayers from un-scrupulous tax preparers who obtain payment for their tax preparation services by depositing part or all of their clients’ refunds into the preparers’ own bank accounts. The new direct deposit limits hopefully will eliminate this type of fraud.
Direct deposit must only be made to accounts bearing the taxpayer’s name. Preparer fees cannot be recovered by using Form 8888 to split the refund or by preparers opening a joint bank account with taxpayers. These efforts by tax preparers are subject to penalty under the Internal Revenue Code and to discipline under Treasury Circular 230 (also, see Circular 230 Tax Professionals page).

Zaher Fallahi is a California Tax CPA and has specialized in providing tax and accounting services to the medical professionals (dentists and physicians) since 1992, and practices as Los Angeles Dental CPA and Orange County Dental CPA. Los Angeles (310) 719-1040 and Orange County (714) 546-4272, e-mail: taxattorney@zfcpa.com

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