Avoid Check Fraud This Tax Season

By: Maggie Griffin 

Associate Attorney* – Quraishi Law Firm

In the spirit of tax season and April 15 looming sooner than we would all like, the Quraishi Law Firm would like to caution our clients when writing out their checks.  We all know that we should include dashes or a line after the written words reflecting a dollar amount – but do we regularly include the dash in the payee line? What about those short Payee names that leave copious amounts of blank space on the payee line? Should we include the dash after their name? The answer is an astounding YES, and the greatest example of this error is also one of the greatest check fraud cases in this country and involves none other than the I.R.S.

THE CHECK FRAUD PROBLEM

From 1995 – 1997, employees of the Internal Revenue Service embezzled approximately $5.3 million from altering tax payer checks, according to a General Accounting Office report. I.R.S. employees fraudulently altered taxpayer checks made payable to the “I.R.S.” by adding “mith” so that the payee then read “I.R. Smith.”

WHAT THIS MEANS TO YOU:

Legally, the drawer of the check is protected by their drawee bank, for paying a fraudulent or non-payable check via the bank statement rule and breach of presentment warranty. The bank statement rule allows drawers to force their banks to refund their accounts for paying the fraudulent check so long as the drawer does not contribute to the negligence and reports the fraud in a timely manner. Drawers can be contributorily negligent by leaving their checkbooks out in plain view or not removing an employee signor from the signature card after termination. The bank will then attempt to recover their money from the payee’s bank for breach of a presentment warranty.

LESSON LEARNED: 

When writing your checks out to the I.R.S. or any other payee, include the dash line after the name. This allows you to prove to your drawee bank that you are not contributorily negligent in the payment of a non-payable and fraudulently altered check.  From this point forward, we urge our clients to include the dash after all names they write on the payee line.

 

Maggie Griffin is proud to join the Quraishi Law Firm following her 2015 Summer Internship. Maggie earned her B.S., B.A., and J.D. from the University of Texas at Austin and she looks forward to establishing herself within the Frisco community. Maggie is an avid Big XII sports fan and a nationally ranked equestrian rider within the American Paint Horse Assoc. and American Quarter Horse Assoc. 

 

* Pending Feb. 2016 Bar Results