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Tax Law News: Tax Refunds on Prepaid Debit Cards Being Frozen by Feds?

Posted on in IRS Scams

Prepaid debit cards already have enough controversy surrounding them, and this latest bit of news about tax refunds being frozen for prepaid debit card users isn't going to do any favors for the industry.

Several news outlets, including ABC News, are reporting that the reason for this "funds freeze" is because the IRS is teaming up with the financial industry to crack down on tax fraud.

The problem is, of course, is that this is affecting the nation's poorest Americans...and they are finding that they have very little recourse.

But according to the IRS, though this is an inconvenience for these Americans, it's an absolute necessity in order to stave off the growing tax fraud scam that people are doing, using prepaid cards to collect the tax refunds of unsuspecting victims.

In 2012, according to the IRS, there was a Miami man who was sentenced to five years in prison, and an additional three years of probation, for filing over 500 fraudulent tax returns. This man also used prepaid debit cards to collect the money, and this includes using such companies as GreenDot and WalMart Money Cards. Finally, this man also used gift cards to receive the refunds, which totaled over $30,000.

In a statement released to The Associated Press, Jackson Hewitt said that they now require two forms of ID in order to receive their tax refunds on a prepaid card. In addition, American Express suggests that all personal information matches with the information on your prepaid card in order to prevent a "funds freeze" on your account.

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