The Internal Revenue Service is acknowledging that it screwed up some of the coronavirus stimulus payments by sending them to dead people, and now Uncle Sam wants his money back.
The IRS added a couple of items this week to its list of frequently asked questions about economic stimulus payments being issued for the COVID-19 coronavirus with respect to some individuals getting payments to people who were deceased and what to do in the event this happens.
Here’s what the IRS had to say:
Does someone who has died qualify for the Payment?
No. A Payment made to someone who died before receipt of the Payment should be returned to the IRS by following the instructions in the Q&A about repayments. Return the entire Payment unless the Payment was made to joint filers and one spouse had not died before receipt of the Payment, in which case, you only need to return the portion of the Payment made on account of the decedent. This amount will be $1,200 unless adjusted gross income exceeded $150,000.
“You’re not supposed to keep that payment,” Treasury Secretary Steven Mnuchin recently told the Wall Street Journal. “We’re checking the databases, but there could be a scenario where we missed something, and yes, the heirs should be returning that money.”
How to Return a Payment
If you’re faced with this situation, you then will have the pleasure of wading through the instructions on how to return said payment. A subsequent Q&A contains goes into all of the details.
If it’s a paper check, you must write “void” on it and then mail it back to the Treasury Department.
If it was a direct deposit, you have to write a personal check to the government (or a money order) and mail that to the Treasury Department.
There isn’t just one address where you send it though. You have to read through a table that lists various scenarios based on where you live to see which one applies to you and then select the corresponding address.
Although this is probably not all that difficult to do, adding all of the extra steps when the IRS is asking people to fix its mistake isn’t likely to encourage them to comply with the request.
What If You Don’t Return the Payment?
And what happens if you don’t send the payment back? That isn’t clear. The IRS doesn’t address this in its FAQs. Moreover, the situation has confounded tax experts.
In 2008, payments were sent to Americans under a similar stimulus program and dead people received those payments, but no real effort was made by the IRS to get them back.
Nina Olson, executive director of the Center for Taxpayer Rights, told AARP, “What is the legal reasoning for this and why is this position different from the IRS’s position in 2008?. The government is entitled to change its mind, but without explaining its rationale, this position appears arbitrary and capricious.”
“I suspect the IRS will encourage people to return payments given incorrectly, but it’s less likely the agency will pursue people legally or through the 2021 tax season,” said Watson. “It’s important to note that the IRS FAQs are not considered legal documents or even formal guidance, so while they are helpful in establishing the agency’s position, we’d need more details before knowing whether they’d have a strong case to pursue individuals legally over the payments.”
Alan D. Viard, a resident scholar at the American Enterprise Institute (AEI) who studies federal tax and budget policy, wrote that what the IRS is doing by issuing these new guidelines is against the law. He notes, “Nothing in the CARES Act denies the rebates to people who are incarcerated or who died in 2020 before receiving payments.”
Viard goes on to state, “The IRS’s unilateral denial of payments to people who are legally eligible for them usurps the lawmaking power that the Constitution assigns to Congress.”
There are no hard and fast rules on this situation, so it would be wise not to make any assumptions. You should consult a tax professional if you have questions about your personal situation.
This is Not a New Problem
It seems like whenever the government sends money to people, it exposes the flaws with its tracking systems.
Congress is aware of the problem and has introduced legislation in the past in an attempt to make some improvements. In 2018, The Stopping Improper Payments to Deceased People Act (H.R. 4929) was introduced in the House, and in 2019, a similar bill was introduced. Neither bill has gone anywhere.
Senator Tom Carper (D-DE) heard about this latest problem with the coronavirus stimulus checks and fired off a letter to agency leaders decrying the “serious waste” of the payments and promoted the Senate version of one of the aforementioned bills.
“…these improper payments to deceased individuals represent significant government waste and a burden to constituents who mistakenly accept the payments,” wrote Carper in the letter.
Why are deceased people receiving stimulus checks?— Senator Tom Carper (@SenatorCarper) May 8, 2020
It’s critical Americans get relief quickly, but these improper payments represent serious waste and a burden to those who receive them.
Read our new letter to the administration demanding answers and a plan to end them ⬇ pic.twitter.com/gFNfnD25XN
Given the frequent recurring nature of this problem and the apparent lack of interest on seriously addressing it, it seems likely that dead people will continue to receive their share of government payments in the future.