They asked politely, and they posted instructions on the web, but the IRS says they've run out of tools for retrieving stimulus payments made to the dead without seriously inconveniencing the living.
As of February 28, the IRS had recovered just $702 million (57 percent) of an estimated $1.2 billion sent to deceased taxpayers during the first round of economic impact payments (EIPs) authorized by the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136), according to a March 31 Government Accountability Office report on the federal government’s COVID-19 response.
That $702 million figure hasn’t budged since August 2020, the GAO noted.
Yet the IRS rejected the GAO’s recommendation that it establish new quality and payment delivery assurance controls over the third round of EIPs, authorized by the Consolidated Appropriations Act, 2021 (P.L. 116-260), and the anticipated periodic advance child tax credit system.
The GAO observed that the IRS had responded positively in 2020 to four previous recommendations on erroneous EIP distributions — including telling recipients of stimulus payments to the deceased how to repay Treasury; using increased email, web, and postal community outreach; and analyzing the outreach’s effectiveness.
As of March, “IRS officials determined that further actions, such as initiating erroneous refund cases against the estates of the decedents to which payments were made and not returned, could be burdensome to taxpayers, the federal court system and IRS,” the GAO said.
The IRS told the GAO that it will monitor the effectiveness of new controls on the third round of EIPs and adjust them accordingly.
The GAO said it will examine the IRS’s latest stimulus distribution performance, adding, “We will also review the effect of selected tax policies — including provisions in the CARES Act and Tax Cuts and Jobs Act — on households by sex, race, and ethnicity.”
Count First, Account Later
The IRS agreed that it can do a better job ferreting out potential employer tax credit fraud.
Businesses claimed $10.2 billion in employer tax credits as of January, the GAO said. The IRS could be using employee count data on Form 941, “Employer’s Quarterly Federal Tax Return,” and Form 943, “Employer’s Annual Federal Tax Return for Agricultural Employees,” to identify potentially ineligible pandemic-related sick and family leave claimants, the watchdog said.
The IRS endorsed the idea, noting in an addendum to the GAO report that it already has plans to identify ineligible claims by employers reporting more than 499 employees. The agency said it also plans to use both forms’ Line 1 — which specifies the number of workers the business employs — in conjunction with other data.
The IRS has made progress on reducing the backlog of paper returns that resulted from COVID-19 closures at its facilities in 2020, according to the GAO. “However, we continue to have concerns and are monitoring the processing of backlogged paper refund requests,” it said.
Despite the backlogs, the GAO noted that the IRS has disbursed $11 billion in tentative business tax refunds, including net operating loss carrybacks and accelerated alternative minimum tax credit refunds, without knowing to what extent businesses are participating in various tax provisions.
Full data on business participation in tax relief measures won’t be available until the IRS finishes processing 2020 tax returns later this year, the GAO said.