Last week GAO released a 400 page report entitled COVID-19: Opportunities to Improve Federal Response and Recovery Efforts. Right on the first page of the report (the Highlights page), GAO notes that it was unable to obtain total federal spending data because of an Office of Management Budget directive that agencies don’t have to report COVID-19 obligations and expenditures until July 2020. GAO states “[i]t is unfortunate that the public will have waited more than 4 months since the enactment of the CARES Act for access to comprehensive obligation and expenditure information about the programs funded through these relief laws.” For government auditors, these are strong words, indeed!
Nevertheless, the report is chock-full of information about the four COVID-19 relief laws enacted to date, reviewing the actions of every relevant agency, including nine pages dedicated to the Economic Impact Payments (EIPs) (see pages 25 to 28 and pages 217 to 224). Among other things, GAO reported that despite entering their eligible children on the nonfiler portal established by the IRS, between April 10 and May 17, up to 450,000 recipients of Social Security, Veterans, and Railroad Retirement benefits did not receive the per-child EIP. Instead, they received EIPs for themselves only. (See GAO report at page 220.)
Any discussion of the IRS’s implementation of the EIP must begin with the now-standard disclaimer that the IRS overall has done an amazing job issuing EIPs. According to GAO, from mid-April through May 31, 2020, IRS and Treasury had issued 160.4 million payments totaling $269.3 billion, through a combination of electronic transfers to bank account, paper checks, and prepaid debit cards. (See GAO report at page 25.) This accomplishment is even more impressive when one considers the IRS has had to operate under pandemic conditions as well. The IRS is also making efforts to reach the large nonfiling population of individuals who are eligible for EIPs and either have not or are not required to file a return. But – and you knew this was coming – the IRS has made some administrative decisions with respect to EIPs that are very troubling.
Recall that the IRS got off to an initial rocky start, when it informed Social Security retirement and disability benefits recipients and Railroad Retirement benefits recipients that they would have to file returns to obtain their EIPs. (For the purpose of this blog, I will call these folks “SSA/SSDI/RRB” beneficiaries.) This approach was completely contrary to IRC § 6428(f)(5)(B), which directs the IRS to calculate the advance EIP by using information in the 2019 Form SSA-1099 (Social Security Benefit Statement) or Form RRB-1099 (Social Security Equivalent Benefit Statement) if there is no 2019 or 2018 return on file for an individual. After much uproar, Treasury and IRS quickly did an about-face and issued a statement that – good news! – these individuals would not have to file a return after all in order to receive their EIPs. Instead, they would be paid out automatically to the accounts used to receive the benefits payments. The IRS later announced that below-filing-threshold recipients of Supplemental Security Income (SSI) and certain Veterans’ benefits would not have to file returns either in order to receive EIPs directly deposited into their benefits accounts.
On the afternoon of Monday, April 20, 2020, the IRS issued a press release informing SSA and RRB recipients that although they would get their own EIP automatically, if they wanted to receive the up to $500 EIP for each of their eligible children, they would have to provide information on the non-filer portal by Wednesday, April 22, 2020. That is, elderly and disabled individuals were given less than 48 hours notice – delivered electronically via a press release – to submit their children’s information – digitally – or else wait until 2021 to get the child-EIP. Never mind that TCE was shut down and VITA was pretty much inoperable, so there was little or no filing assistance available to them. Never mind that TAS research studies showed that 41 million US taxpayers did not have broadband access in their homes, and 14 million had no internet access. The study found that vulnerable groups – the low income, disabled, and elderly – were more likely to access the internet infrequently (less than once a week) and feel less skilled doing internet research than non-low income taxpayers. And never mind that in 2019 the average annual SSA benefit for retirees was $17,652, and for disabled persons $14,832, so they very much needed the additional EIP now, not later.
To compound matters, on the May 1, 2020, the IRS issued yet another press release giving Veterans and SSI benefits recipients a full four days in which to enter their eligible children’s info into the portal; failing that, they would have to wait until 2021 to get the child-EIP.
Making automatic payments to SSA/SSDI/RRB/VA/SSI benefit recipients requires a lot of coordination between the IRS, Social Security, Veterans’ Administration, and the Bureau of Fiscal Services. Faced with the daunting task of issuing these payments in the middle of a pandemic, with a filing season still underway, I can understand why the IRS would want to find ways to make things easy on itself, and even rely on processes already in place. That tendency helps explain (partially) why the IRS initially ignored the requirement to make automatic payments to SSA/SSDI/RRB beneficiaries by trying to take the same approach to these populations it did in 2008 with the Economic Stimulus Payment (ESP), which I discuss here.
The IRS also had the statutory mandate to get these advance payments out “as rapidly as possible.” IRC § 6428(f)(3)(A). Understandably, it wanted to issue them in batches, and set internal deadlines for when it would release data to the Bureau of Fiscal Services (BFS) to make EIPs with respect to different groups of taxpayers. GAO reports the IRS and BFS issued more than 81 million payments, totaling more than $147 million, on April 10, a mere two weeks after the law’s enactment. It began sending paper checks out on April 17, with the first batch going to 7 million individuals. Because BFS can only issue 5 to 7 million checks a week, commendably the IRS prioritized mailing checks first to those with the lowest adjusted gross income. The IRS established April 24 as the date on which automatic payments would be issued to nonfiling SSA/SSDI/RRB benefits recipients, and May 5 as the date for issuance of payments to nonfiling SSI/VA recipients. The IRS also appears to have made the internal decision that once an eligible individual receives an EIP, there will be no supplemental EIPs made in 2020. Instead, eligible individuals can file a 2020 tax return in 2021 and obtain the additional EIP on that return.
GAO reports the IRS has stated it will find a way to issue supplemental EIPs to those eligible individuals who entered their children’s information on the nonfiler portal before the IRS’s “deadlines”. IRS should expand that approach and commit to issuing supplemental payments to SSA/SSDI/RRB/VA/SSI nonfilers who missed the deadlines. As near as I can tell, because the recipients of automatic EIPs don’t have a 2019 return on file (this has been confirmed by Philadelphia Legal Assistance Tax Clinic Supervising Attorney Lazlo Beh, who obtained transcripts for automatic EIP recipients – thank you, Lazlo!), there is no reason why these individuals can’t file a 2019 return via the nonfiler portal. Once the IRS has this information, it can issue supplemental EIPs to these persons.
I can hear the voices saying, but the IRS doesn’t have the resources to do this in the midst of a pandemic. Actually, what I am proposing doesn’t require significant additional resources. The IRS has already committed to GAO that it will create a mechanism to match the returns coming through the nonfiler portal with the database of automatic EIP recipients, so it can create a file for BFS to issue 450,000 supplemental payments. Once it has that mechanism or algorithm in place, it can run it each week to capture the new nonfiler portal filings and continue to issue supplemental payments through the end of the year. It is even more imperative to do this in 2020 because some of the children eligible in 2019 will have “aged out” and not qualify for a dependent EIP on the 2020 return.
Which brings me to the procedural due process aspects of this whole mess. In Weinstein v. Albright, a case involving passport denial and revocation because of child support arrearages in excess of $5,000, the Second Circuit stated
Pursuant to the due process clauses of the Fifth and Fourteenth Amendments, neither the states nor the federal government may deprive an individual of property or liberty without due process. In order to prevail on a due process claim, a claimant must identify a constitutionally protected property or liberty interest and demonstrate that the government has deprived that party of the interest without due process of law.”
The court, quoting Mullane v. Central Hanover Bank & Trust Co., noted that due process at a minimum requires the government give “notice reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” (Emphasis added.)
Let’s apply the above analysis to the situation at hand. The class of persons affected – SSA/SSDI/RRB/SSI/VA benefits recipients – clearly have a property interest in the EIP. To that end, consider RV v Mnuchin, a recent case filed in federal district court in Maryland. In RV v Mnuchin, the plaintiff alleges that the CARES Act violates the equal protection principles of the Fifth Amendment by prohibiting the EIP for US citizen children in a family where one or both parents have an ITIN and are undocumented immigrants. The plaintiffs in that case argued that the federal district court has jurisdiction under the Little Tucker Act, which is a jurisdictional statute that waives sovereign immunity protection and authorizes monetary claims founded upon the Constitution or any Act of Congress. In finding that the plaintiffs had jurisdiction and did not have to wait until filing a refund claim in 2021 to have the case heard the district court emphasized that CARES creates a statutory mandate for the receipt of the EIP:
The CARES Act provides for economic impact payments by creating a legal fiction that qualified individuals “overpaid” on previously filed taxes. The Act states “there shall be allowed a credit” of $1,200 for eligible individuals and $500 for qualifying children for this overpayment and that “[t]he Secretary shall, subject to the provisions of this title, refund or credit any overpayment attributable to this section as rapidly as possible.” 26 U.S. Code §§ 6428(a), (f)(3)(a) (emphasis added). The Act therefore requires the government to pay the fictional overpayment, and be quick about it. This indicates that 26 U.S. Code § 6428 is a money-mandating statute.
In fact, given the current circumstances – a global pandemic and resulting recession – they have a property interest in obtaining the advance EIP “as rapidly as possible”, as the law requires. We must then turn our attention to whether the IRS’s notice of the deadline to receive the advance EIP for eligible children in 2020 was “notice reasonably calculated, under all circumstances” to give this population time to take action or raise objections before being deprived of their property interest. The circumstances here include the target populations of the notice – the elderly and disabled, and the lowest income persons in the United States. These populations are among those most likely not to have access to the internet, most likely to be isolated, and for whom the normal support systems (VITA and TCE) were literally inoperable.
Under these circumstances, a 48 hour or four day digital notice does not meet minimum due process safeguards. The IRS did not give these individuals adequate due process before it deprived them of their property interest in receiving the advance EIP for their children in 2020. In fact, the government’s failure to provide adequate notice will permanently deprive some of these individuals of their property interest in the EIP because they will be ineligible to claim it on their 2020 returns. Therefore, the IRS must take steps now to remedy that violation, before December 31, 2020.
Others have written posts about EIP issues pertaining to injured spouses and victims of domestic violence. In 2008, according to TIGTA, the IRS processed 3.5 million Forms 1040X amended returns that were solely related to the ESP and also processed 316,000 injured spouse claims. It is not clear why the IRS cannot address these taxpayers’ claims before December 31, 2020, and issue supplemental EIPs. It was done in 2008, and it is even more urgent to get these funds out in 2020. Yes, I know these are difficult times for the IRS, but they are also difficult times for taxpayers. Unlike IRS employees, who are being paid even as they are unable to work, the people included in the supplemental payment population are among the most economically vulnerable in the United States. So, on top of all the extraordinary measures the IRS has taken to date to deal with COVID-19, the people of the United States need it to undertake one more extraordinary measure and issue supplemental and replacement EIPs to automatic EIP recipients with children, injured spouses, and innocent spouses.