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IRS in Action: Fixing the Injured Spouse EIP Issue

Posted on Aug. 31, 2020

One of the most frequent problems I’ve seen this summer has been the IRS taking “joint” EIP payments and applying all of it to one of the spouses back-due child support where the other has no such obligation. This is the prototypical “injured spouse” scenario, and in these difficult economic times it has taken on an even greater importance.

On Tuesday, August 25 the IRS issued a news release stating that roughly 50,000 injured spouses would, at long last, be receiving the EIP that had been applied to child support. This issue has been covered numerous times on Procedurally Taxing here, here, and here, and has seen a tremendous response in the comments sections to each post. This post will give a brief recap of what the IRS news release says, and what comes next.

The IRS previously gave indications that they were going to start working (in earnest) on resolving the problem. As Keith previously discussed, a National Taxpayer Advocate blog post suggested a late-August timeframe for the IRS fixing many of these issues. Late-August has essentially come and gone, and the IRS news-release now anticipates payments being sent “early-to-mid-September.”

Hopefully the IRS meets this timeline. But it is important to note that even if it does, this timeline only applies for some, and not all, injured spouses. For the purpose of issuing the EIP, it is best to think of three tiers of injured spouses: (1) those that the IRS already has an “injured spouse indicator” on file for, (2) those that have an injured spouse indicator in queue, and (3) those that never filed the injured spouse form at all. As we’ll see, tiers two and three may be virtually indistinguishable from a practical perspective, and only the first tier should receive the payment by early-to-mid-September. So, naturally, one wonders: how do you get in the first tier?

(Before I go any further, please note that the IRS doesn’t actually or explicitly have these “tiers” and is not taking any preferential actions for some taxpayers over others. I am just suggesting the concept as a helpful way to consider who can expect payments sooner than later.)

Tier One of Injured Spouse Relief – You’ve Told the IRS You’re an Injured Spouse, and They Heard You

The first tier is for those individuals where the return information the IRS used to issue the EIP already indicated that they were an injured spouse. I take this to mean that if you filed a 2019 return with a (likely electronic) injured spouse form the IRS knows about it and is making the fix. But since the EIP also (sometimes) pulls in 2018 information, exactly who falls into the first tier isn’t crystal clear.

The IRS news release says that if you filed a 2019 return with an injured spouse form you don’t need to take any action and should receive the payment. What if your 2019 return doesn’t have an injured spouse allocation, but 2018 does? The IRS teases that “in some cases” filing an injured spouse form with your 2018 return is enough… but what cases are those? Is it where the IRS relied on the 2018 return information for the EIP? That would be my educated guess, but it would be nice not to have to peer into the crystal ball on this issue.

Note also that the IRS is still seriously backlogged processing 2019 paper returns. The Great State of Minnesota’s congressional delegation has uniformly voiced its concern to the IRS on that matter (see letter here), but there is still work to be done. My bet is that if you filed your 2019 paper return with an injured spouse form you slip from tier one to tier two…

Tier Two of Injured Spouse Relief – You’ve Told the IRS You’re an Injured Spouse, but Your Voice is Echoing in the Distance

Tier two is anyone with an injured spouse form currently nestled among the (literally) millions of other documents the IRS needs to open and process. The IRS news release doesn’t actually make any reference to these standalone injured spouse relief forms. Instead the IRS breaks taxpayers into just two camps: those that submitted an injured spouse form with their return and those that didn’t file an injured spouse form at all. But I think that oversimplifies, because a lot of people may have submitted an injured spouse form either by paper with their yet-to-be-processed 2018/19 returns or as a “standalone” paper form after filing a return. I would not place those individuals in the first tier. They are in the “wait a bit longer” group.

There is no special processing center for a standalone injured spouse form: generally, it goes to the same place you would send your tax return. Because of this I have no idea how the IRS would be able to ferret these injured spouse forms from the other papers clogging their arteries to bump the individuals up to tier one. For present purposes, I’d say that filing an as-yet-unprocessed injured spouse form is the equivalent of not filing one at all in the dichotomy that the IRS provides.

The news release somewhat coyly mentions that the IRS doesn’t have a timeframe for responding to these, but will issue checks “at a later date.” One would hope those payments would go out before December 31, 2020, but I don’t actually think there is a statutory imperative for the IRS to apply these payments at any given time. Really just more of a publicity imperative. Fortunately, the IRS news release gives me reason to believe that the IRS is taking this seriously and moving forward with solutions. I believe this because of tier three…

Tier Three of Injured Spouse Relief – You Haven’t Told the IRS Anything, But They Still Hear You

Here is where things get interesting. The IRS says that if you haven’t filed an injured spouse form at all but had your money go to a spouse’s unpaid child support obligations you still don’t need to take any action. How is this possible? Here is where I think we can read between the lines of how the IRS is really dealing with this issue. The only way I can possibly make sense of this is if the IRS is automatically combing its records for ALL joint-taxpayers that had EIP sent to child support agencies and/or all accounts where only one spouse has a certified debt to a child support agency. If people can think of other ways the IRS might already know who is affected without an injured spouse form on file, I’m all ears.

In other words, forget everything I said about three tiers (apologies for wasting your time). The IRS seems to just be looking at its databases and pulling two bits of information from joint returns: (1) injured spouse indicator on file and (2) payments sent to child support with only one taxpayer certified liable. Arguably, dataset two is everything that would be needed, but it also seems that (for whatever reason) those that have the injured spouse indicator on file make for an easier fix. Thus, they fit into the early-to-mid-September payment group. I am not an expert on how the IRS recoups the payments already issued to child support agencies (and very much welcome comments from anyone that has familiarity with the process), but that could also factor into why the injured spouse indicator may matter.

It appears that the IRS is taking a systemic approach to this, while recognizing the unique limitations of the pandemic on just applying manpower to processing all the paper injured spouse forms that have piled up to them. Kudos to the IRS for their problem solving, if that is the case, and especially if they are able to pull this off without requiring those affected to take additional action or send additional mail.

The IRS news release was very short and fairly sparse on details. Many questions and issues remain with the EIP more broadly, but some lessons hopefully can be gleaned in the interim. An overarching lesson may be that the “one-and-done” goal of the IRS to issue a single payment and then sort things out in the 2021 filing season is not feasible (see Nina Olson’s post here). Even strictly on the issue of injured spouse payments, it isn’t immediately clear that an IRS fix won’t need tweaking for many individuals. For example, where the EIP involves an extra $500 for dependents, and especially in the absence of an injured spouse form “allocating” dependents among joint taxpayers, it is not immediately clear how the IRS will decide to split the $500 that was offset to child support. My assumption is that the IRS will read IRC § 6428(e)(2) to mean that you just split the entire EIP down the middle for joint returns, which I think is a completely defensible (though not necessarily required) reading of the statute.

In any event, one hopes that the IRS implement the fix with a heavy dose of urgency: as the comments sections on Procedurally Taxing amply attest, there are a lot of people hurting for these checks.

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