A pilot program aimed at providing tax refunds on prepaid debit cards ran into a series of problems before the Treasury Department ultimately discontinued it.

Last year, the Treasury Department asked the Urban Institute to conduct a study of its MyAccountCard debit card pilot program.  The program was intended to encourage taxpayers to receive their tax refunds on pre-paid debit cards but was suspended after only 2,000 of the 808,000 taxpayers contacted elected to participate.  After repeated requests from House Ways and Means Committee Chairman Dave Camp, R-Mich., and Oversight Subcommittee Chairman Charles Boustany, Jr., R-La., the Treasury finally released the report. The findings revealed the $1.4 million pilot program performed worse than originally expected.

Of the 808,099 taxpayers selected to participate in the pilot, 12.5 percent of the invitations were never received because they were sent to the wrong address. The Urban Institute estimates that only 707,000 invitations were received. Only 1,933 taxpayers were issued MyAccountCards. Only one-third, or roughly 644, of the recipients ever used their card.  Of these, only 238 were still using their card in the last month reviewed. Less than one-tenth of 1 percent of those who were chosen to participate in the study actually used their card, at a cost of $2,100 per user, and over $4,000 per user who used the cards to receive their tax refund.

Nearly 75 percent of all the participants were charged various fees and penalties under the program. Despite the program’s failings, the Treasury Department summarizes it as a “proof of concept.”

“Over the past two years, I have expressed concerns with this program and its effectiveness,” said Boustany. “After multiple attempts to hide the ball, Treasury released a report detailing the debit card pilot program. Instead of hiding program failures, Treasury needs to be up front and transparent about how they are spending Americans’ hard-earned tax dollars.”

The Treasury Department defended the program. “We believe the pilot produced useful information that will inform efforts going forward to transition paper check tax refunds to electronic refunds,” said Treasury spokesperson Matt Anderson.

A separate initiative to allow tax refunds to be deposited on debit cards has also run into trouble in another way, with reports of widespread abuse by identity thieves who utilize the debit cards to steal legitimate taxpayers’ refunds. The debit cards make it difficult for law enforcement to trace the owners after the funds are deposited (see IRS and Social Security Urged to Curb Tax Fraud and Identity Theft). Law enforcement authorities, particularly in the Tampa area, have asked the IRS to curtail the use of debit cards for tax refunds.

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