Secure Digital Tax Refund System Can Solve Stolen Check Problem

Stolen IRS tax-refund checks—and in some cases, even stolen replacement checks—are a frustrating reality for many taxpayers. Embracing technology can help the IRS create a more secure refund system without alienating taxpayers.

The Taxpayer Advocate Service offers the ability to trace missing refunds through the “Where’s My Refund?” system or the IRS2Go mobile app, but these provide little comfort for taxpayers who may depend on the timely arrival of their refund.

The IRS already offers direct deposits for refunds, but some taxpayers prefer or require alternative options and have been left to rely on paper checks. We need more comprehensive solutions to address this problem.

First, the IRS should offer secure digital refund cards for those without access to bank accounts in a way similar to electronic benefits transfer cards for income assistance programs. Second, it should allow taxpayers to pick up refund checks at trusted and secure locations such as post offices. Third, there should be an optional mobile app to help taxpayers track and manage their refunds.

Taxpayers without access to bank accounts, or those who prefer not to share banking details with the IRS, can be provided with secure digital refund cards. Such cards are already offered in all 50 states for EBT programs.

These prepaid cards can be mailed directly to taxpayers, using established safety protocols such as sending the card and personal identification number through separate channels. Sending the two items in separate envelopes without obvious markings would work.

This process ensures the taxpayer can securely activate their card only when they possess both the card and the PIN, minimizing the risk of interception or theft. For unbanked individuals, a debit card system eliminates the need to rely on expensive, and potentially predatory, check-cashing services that might otherwise take a significant percentage of the refund in fees.

An obvious concern is how unbanked individuals, who may rely on cash, will access their funds through such a system. But one benefit of an EBT-style debit card system is that it can be used at ATMs, grocery stores, and major retailers that offer cash-back options. Taxpayers would have direct and secure methods to spend or withdraw their refunds without needing to engage with any traditional financial institutions.

Offering secure card pickup to taxpayers who don’t want to or can’t receive digital cards through the mail would be a practical alternative. This solution uses the widespread availability of the US Postal Service via a network of trusted sites present even in rural and underserved areas.

Activating the refund check at the post office during pickup would be key to securing such a process. When a taxpayer opted for an in-person pickup, the refund check could be sent to a local post office in an inactive state—not bearing a stamp or PIN required for the check to be cashed or deposited.

The refund check would then remain inactive until a USPS worker confirms the recipient’s identity. The check would only become valid for deposit or cashing after activation—so if the check were stolen before the taxpayer arrived to collect it, it would be useless.

This activation process is comparable to the introduction of software kill switches for smartphones, which reduced theft dramatically upon introduction by making stolen phones unusable without the owner unlocking them. The street value of refund checks craters when they can’t be cashed or deposited without activation.

For taxpayers who are comfortable with technology and want more detail when managing their refunds, an optional mobile app could provide additional security and flexibility. The app could enable taxpayers to track the status of their refunds, manage refund cards, and adjust refund delivery preferences—including scheduling in-person pickup.

Existing security protocols such as two-factor authentication, and biometric features such as fingerprint or facial recognition, would make refunds more secure than mailed checks or even secure digital cards.

These protocols would protect sensitive information, and it would ensure taxpayers can manage refunds without fear of unauthorized access or interference. Real-time notifications about refund progress also would give taxpayers more information about when they should expect their refund, reducing the potential for fraud.

Importantly, any technological solutions must remain optional—while an app can offer more convenience for those who prefer using digital tools, it shouldn’t be required to access refunds. The secure digital refund cards and USPS pickup options must remain viable, complete alternatives.

These proposed solutions for tightening refund security could reduce theft and provide secure options for taxpayers, but we must acknowledge the challenges that come with introducing any new system. The IRS should provide strong support systems and outreach initiatives, ensuring no taxpayer is left behind.

To help taxpayers navigate these new options, the IRS could collaborate with community organizations, local nonprofits, and libraries. Many of these organizations already assist elderly, low-income, and unbanked individuals with filing their taxes and accessing government services.

For instance, local libraries often provide common tax forms and already host information sessions and Volunteer Income Tax Assistance appointments. Offering assistance with refund card activation, mobile app access, or check pickup scheduling at these trusted locations would ease the refund system transition.

A multi-pronged approach helps ensure that all taxpayers are considered. A targeted education and awareness campaign would be essential to the widespread adoption of these new systems.

With no sign of mail-related check fraud abating, it seems clear something needs to change soon.

Andrew Leahey is a tax and technology attorney, principal at Hunter Creek Consulting, and adjunct professor at Drexel Kline School of Law. Follow him on Mastodon at @andrew@esq.social

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