Green Book to the rescue to make sense of tax season

posted by Luann Kohlman, AAP, APRP on Wednesday, March 2, 2022 in SHAZAM Blog

Tax season is in full swing, and since over 80% of refunds are sent via direct deposit, financial institutions will end up seeing thousands of income tax refunds hitting client accounts. 

If the consumer filled out their tax forms correctly, with the proper financial institution routing number and account number, the refund entry will post with no human intervention. And life is good, right? But that’s not always the case, and this is where the problems arise — and could be costly to your financial institution.

Decision making using the Green Book
If you’re not already aware, let me introduce you to a little decision-making reference guide called the Green Book, a comprehensive guide for financial institutions that receive ACH payments from and send payments to the federal government. It says, “If the taxpayer or agent gave incorrect information, neither Bureau of the Fiscal Service nor the IRS will assist the taxpayer with recovering the funds.” 

But, as a financial institution, it’s not up to you to play detective and find out where rejected tax refunds are supposed to go. In the ACH world, we have always followed the rule: post by account number and account number only! 

Hands off
But what if you can tell where the entry is supposed to go? Maybe there’s an extra digit in the account number and you could easily fix it. If the entry rejects and you change anything in the entry (account number/transaction code) vs. returning the rejected entry, you do so at your own RISK and become LIABLE! (Green Book 2-5)

To guard your institution from liability, any time a tax refund entry rejects, you’re always able to return it using the “R03-No account/unable to locate account” or “R04-Invalid account number return” reason codes. If the account has previously been closed,  use the “R01-Account closed” return code. Do not reopen the account. (Green Book 4-4)

Delivery error
Another issue tied to this time of the year is tax refunds posting to an account not owned by the payee whose name appears in the ACH payment information. This could be a case where the legal account owner brings the tax refund error to your attention.  

The Green Book says the financial institution shall promptly notify the agency by returning the original entry using the appropriate return reason code. By doing this, you have satisfied your requirement to notify the agency. (Green Book 2-6)  

If you decide to transfer the tax refund to an account which you believe is correct, you do so at your own risk. The financial institution may be liable to the issuing agency if the judgment regarding the intended payee is incorrect and there’s a resulting loss. (Green Book 2-5)

So, in my eyes and the eyes of the Green Book, if a tax refund rejects and does not automatically post without human interaction, RETURN it! 

U.S. Government Accountability Office note about the Green Book

• The Green Book is designed to deal primarily with exceptions or issues unique to federal government operations.
• The Green Book contains federal agency contact information and website addresses where appropriate.
• To make the Green Book easier to navigate, download and print, chapters are available in PDF format only.
• The Green Book is periodically updated, so check back often for changes.
• If you have questions about the Green Book, contact us.
   

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