Return stimulus payment paid to decedent required ?

[Rapid Robert]

I had one client, spouse died in 2018 and there are two minor children who are receiving SS survivor benefits. Each child received a $1,200 EIP. I informed that taxpayer that they were not required to return the money.

For those who did return the money paid to a decedent (assuming they were rightful heirs of the decedent), I would at least advise them to record a charitable contribution of the amount returned (a gift to reduce the public debt), which as I recall for 2020 can be recorded up to $300 directly on Form 1040 adjustments section, no itemizing required.

[Scarecrow]

2201(f)(1) says, "each individual who was an eligible individual for such individual’s first taxable year beginning in 2019 shall be treated as having made a payment against the tax imposed by chapter 1 for such taxable year in an amount equal to the advance refund amount for such taxable year." Later, it states that tax year 2018 is substituted for 2019 if 2019 not yet filed.

Wrong.

You are assuming that paragraph says the individual qualifies for the payment because they were not dead yet and thus an eligible individual. The paragraph refers to how to treat an advanced payment against the refundable credit allowed in 2020. Your 2020 credit must be reduced by any amount received based upon your 2019 tax return. That does not mean you all of a sudden qualify for an amount based upon your 2019 tax return. It merely says whatever you receive based upon your 2019 tax return will be taken into account before determining how much of a credit you qualify for on the 2020 return.

An important point you are skipping in that law. It says: ‘‘(h) REGULATIONS.—The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this section, including any such measures as are deemed appropriate to avoid allowing multiple credits or rebates to a taxpayer.’’

That is the law. The IRS is directed under the law to prescribe guidance as to how to carry out the purpose of the law. The IRS has clearly interpreted that Congress did not believe decedents needed to get money to help stimulate the economy, and the IRS still to this day says a deceased individual does not qualify for the payment and must return any such payment received.

[DoubleO]

Wrong.

You are assuming that paragraph says the individual qualifies for the payment because they were not dead yet and thus an eligible individual. The paragraph refers to how to treat an advanced payment against the refundable credit allowed in 2020. Your 2020 credit must be reduced by any amount received based upon your 2019 tax return. That does not mean you all of a sudden qualify for an amount based upon your 2019 tax return. It merely says whatever you receive based upon your 2019 tax return will be taken into account before determining how much of a credit you qualify for on the 2020 return.

An important point you are skipping in that law. It says: ‘‘(h) REGULATIONS.—The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this section, including any such measures as are deemed appropriate to avoid allowing multiple credits or rebates to a taxpayer.’’

That is the law. The IRS is directed under the law to prescribe guidance as to how to carry out the purpose of the law. The IRS has clearly interpreted that Congress did not believe decedents needed to get money to help stimulate the economy, and the IRS still to this day says a deceased individual does not qualify for the payment and must return any such payment received.

The law also specifically states that individuals who qualify as dependents of a taxpayer are not eligible for the EIP, yet as Rapid Robert pointed out, dependents who get SS benefits have also gotten the EIP payment of $1200. Where is the FAQ/guidance telling them this payment also needs to be returned?

I've been informing my clients who ask about this of the different interpretations of the law and telling them that I will not make the decision to return it or not to return it for them. I also tell them that if they voluntarily return it (that is with no direct demand from the IRS), and it is later decided they were entitled to it all along, that the IRS may refuse to re-issue the payment with the argument that it was returned voluntarily.

This has been a strange year.

[TAXNJ]

For what it's worth - two articles

ARTICLE # 1

You Don’t Need To Return Uncashed Stimulus Checks Issued To Dead People

https://www.forbes.com/sites/jimwang.../#47f017593fb2

ARTICLE # 2

"This isn’t the first time it’s happened.

When the Obama Administration passed a $13 billion economic stimulus package to combat the Great Recession in 2009, about 89,000 checks worth $250 each were sent to dead and incarcerated people, The Atlantic reported.

According to a 2010 audit by the Office of the Inspector General and the Social Security Administration, 71,688 of those went to the deceased. But a startling 41,000 checks issued in error were returned, The Wall Street Journal reported.

Spending social-security money issued to someone else is illegal in the U.S. — but it’s “rarely prosecuted for small amounts,” according to the Journal."

https://www.mcclatchydc.com/news/cor...242034881.html

[Scarecrow]

I never claimed IRS is implementing the law consistently or fairly. I am merely stating what the law says and how the IRS is currently interpreting. The real problem is Congress does not know how to create tax laws that are easy to understand.

And for what its worth, I too have a client that received a stimulus check for her deceased husband. I informed her of what the IRS says, and let her decide whether or not to keep it. She decided to keep it until the IRS asks for it back. And I am fine with that, as long as I know and she knows that I informed her of what the IRS currently is saying about the subject.

[Rapid Robert]

That does not mean you all of a sudden qualify for an amount based upon your 2019 tax return. It merely says whatever you receive based upon your 2019 tax return will be taken into account before determining how much of a credit you qualify for on the 2020 return.

This is where you are wrong. The law explicitly says you do "all of a sudden qualify for an amount based upon your 2019 tax return". There is no requirement to file, or be required to file, a 2020 tax return at all. The advance credit is based on 2019 (or 2018) tax return, period.

"You are assuming that paragraph says the individual qualifies for the payment because they were not dead yet and thus an eligible individual." I am assuming this because this is what that paragraph says.

"The IRS has clearly interpreted that Congress did not believe decedents needed to get money to help stimulate the economy, and the IRS still to this day says a deceased individual does not qualify for the payment and must return any such payment received." The money sent did not end up in Heaven, however. It ended up in the hands of people who may spend it to help "stimulate the economy" (which isn't actually the problem with the economy right now, but whatever). And the IRS does not say a decedent's EIP must be returned, only that it should be returned. In the tax world there is a huge difference between those two terms.

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As to TaxNJ's linked articles -- you are comparing apples and oranges. The article is referring to the Economic Recovery Payment. It may be true that the ERPs were sent to some decedents, but the ERP was nothing like the EIP. It was not an advance credit, and it was not based on the income tax return. See description following.

The apples-to-apples comparison would be with the Recovery Rebate Credit, which was passed under the Bush administration, not Obama. It was almost exactly like the EIP, except for the dollar amount, in fact I wouldn't be surprised if they just copied/pasted the language for the CARES Act and then just tweaked it a bit. See description following.

ERP - passed in 2009. Any ERP received reduced the Making Work Pay credit

"Economic Recovery Payments (ERP), in effect only for 2009, are a one-time payment sent directly to eligible recipients. The payments were made to the following:
• Adult recipients of social security benefits, SSI cash payments, and railroad retirement benefits
• Adult recipients of disability or pension benefits from the Department of Veteran’s Affairs (VA)
Individuals must have received one of the qualifying benefits during November 2008, December 2008, or January 2009."

Recovery Rebate Credit - passed in 2008 Note that the name is exactly the same as the one used in the 2020 CARES Act!! It was for $300, not $1.200, but otherwise works the same way.

"Advanced refunds. The IRS issued advance refunds in 2008 based upon the amount that would have been allowed as a credit if that credit had applied for tax year 2007. No advanced refunds will be issued after December 31, 2008. Any advance refund paid to the taxpayer reduces the credit that is allowed for 2008, but not below zero. Since the credit cannot be reduced below zero, the taxpayer is allowed to keep any excess advance refund based upon the 2007 return that exceeds the actual credit allowed for 2008."