IRS Cancels Stimulus Checks Issued to Decedents

IRS Cancels Stimulus Checks Issued to Decedents

 

According to the recently updated IRS FAQ page, the Treasury Dept. has cancelled outstanding Economic Impact Payment checks issued to recipients who may not be eligible, including those who may be deceased. Some sources indicate the Bureau of Fiscal Services, the agency issuing the stimulus checks, has stopped payment on uncashed checks and is even having those that have already been deposited into existing bank accounts reversed.

 

See Relax Tax’s Tax Audit Assistance at relaxtax.com/audit

 

Is this an overreach by the Treasury Department? The CARES Act, passed by Congress in March and the legislation that authorized the stimulus payments, says anyone alive in 2019 is entitled to a payment. Here is a little background on this issue.

In late April in an interview with the Wall Street Journal, Treasury Secretary Mnuchin was quoted as saying that stimulus payments to deceased individuals should be returned. However, he provided no statutory authority requiring such payments to be returned.

Nina Olson, the former longtime IRS Taxpayer Advocate and founder of the Center for Taxpayer Rights, has asked, “what is the legal reasoning for this?” In various publications she noted, as mentioned earlier, that the CARES Act doesn't say deceased people can’t receive stimulus checks and added that the hard stance may have come from the White House.

 

 

This could be another rough tax season for the IRS and taxpayers. Although this year’s filing season opens January 24, 2022 (i.e., it is the first day the IRS will accept and start processing 2021 returns), the Service still has a backlog of prior year returns to process and is plagued by staff shortages due to the pandemic and reduced funding in the last few years. Even though the majority of 2020 returns were filed electronically, many of those returns still required manual review, resulting in significant delays in IRS issuing refunds.
 
 

There was a similar situation in 2008 during the world wide Great Recession when real estate values tanked. At that time Congress also authorized stimulus payments and payments were also issued to deceased individuals. Back then, there was no requirement for those payments to be repaid.

Some of the later checks sent out this year were in an IRS envelope that stated that forgery of endorsements is a federal crime, etc., and had a check box “If recipient is deceased, check here and drop in mailbox.”

According to the Treasury Inspector General for Tax Administration, as of May 21, 2020, IRS had issued more than 157 million economic impact payments totaling more than $264 billion. Of those, less than 1.2 million payments (less than 1 percent) were issued to deceased individuals.

As time has passed, the IRS has gotten more aggressive with their position that payments to deceased individual be returned, even though they have not quoted any statutory authority. The IRS Q&A has been updated to include the following:

Q2. Who is not eligible for a Economic Impact Payment?

A2. Taxpayers likely won't qualify for an Economic Impact Payment if any of the following apply:

  • You do not have any qualifying children and your adjusted gross income is greater than
    • $198,000 if your filing status was married filing jointly
    • $136,500 for head of household
    • $99,000 for all other eligible individuals
  • You can be claimed as a dependent on someone else’s return. For example, this would include a child, student who can be claimed on a parent’s return or a dependent parent who is claimed on their child’s return.
  • You do not have a Social Security number that is valid for employment.
  • You are a nonresident alien.
  • You filed Form 1040-NR or Form 1040NR-EZ, Form 1040-PR or Form 1040-SS for 2019.
  • An incarcerated individual.
  • A deceased individual.
  • An estate or trust.

  

 

The prompt means that the IRS has received your return, but due to Covid-19 delays, the IRS is experiencing a considerable backlog, slowing processing times and disbursements. Typically, the IRS processes tax returns and issues refunds within 21 calendar days of receipt. The IRS even stated in January communicating the 21-day time frame. Add in the pandemic-related tax changes and child tax credit advances, and this tax season is more complicated than ever.
 
 
 

Q65. What should I do to return an Economic Impact Payment that was received as a direct deposit or a paper check?

 A65. You should return the payment as described below.

If the payment was a paper check:
Write "Void" in the endorsement section on the back of the check.

  1. Mail the voided Treasury check immediately to the appropriate IRS location listed below.
  2. Don't staple, bend, or paper clip the check.
  3. Include a brief explanation stating the reason for returning the check. 

If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:

  1. Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
  2. Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (social security number, or individual taxpayer identification number) of the recipient of the check.
  3. Include a brief explanation of the reason for returning the EIP.
 
 In addition to any other penalties, the law imposes a $5,000 penalty for filing a frivolous return – one that does not contain information needed to establish the correct tax or that shows a substantially incorrect tax because the taxpayer takes a frivolous position or displays a desire to delay or interfere with the tax laws. This includes altering or striking out the preprinted language above the space where the taxpayer signs. Under limited circumstances, the IRS may reduce the penalty from $5,000 to $500.
 

 

Q66. How do I return an Economic Impact Payment that was received as an EIP Card (debit card) if I don’t want the payment re-issued?

A66. If you received your EIP as a debit card and want to return the money to the IRS and NOT have the payment re-issued, send the card along with a brief explanation stating you don’t want the payment and do not want the payment re-issued:

Money Network Cardholder Services
5565 Glenridge Connector NE
Mail Stop GH-52
Atlanta, GA 30342

If you have questions related to stimulus payments to deceased individuals or others, please give this office a call at 551-249-1040. 

 

Dennis Harabin at Relax Tax is an expert in taxes, insurance, and debt. Contact him today!

 

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