A couple weeks ago I blogged about the significant victory achieved on behalf of prisoners with the grant of a preliminary injunction ordering the IRS to stop denying stimulus payments to incarcerated individuals. As discussed previously, the denial of refunds to incarcerated individuals makes little sense when the statutory language provides no basis for excluding them. The behavior of the IRS here allowing the payments and then deciding about six weeks after the passage of the CARES Act to exclude them also makes for a puzzling situation. As discussed in the prior post, the judge swatted away all of the arguments made by DOJ in granting a complete victory for the incarcerated individuals.
The government appealed the case on October 1.
On October 7, 2020, the Court issued its next ruling. This time it focused on relief. In its initial ruling the court asked the parties to confer and, if possible, propose agreed upon relief measures. The parties did not reach agreement but proposed separate plans. Once again the court did not find the DOJ argument availing.
The first issue concerned the information on the IRS website about incarcerated individuals. The FAQ first published by the IRS in early May told incarcerated individuals they were ineligible for the stimulus payment. The parties were not far apart on how to fix this but the IRS had not gone far enough so:
the court ORDERS defendants to update the IRS.gov website (and any other related page) to state that incarcerated individuals who have not received the advanced refund payment may provide information to the IRS to allow the IRS to consider the individual’s eligibility for the refund. The website shall indicate that individuals may file using the online non-filers tool or by mailing a simplified paper tax return to the IRS. Defendants shall update all FAQs and any other pages that discuss the eligibility of incarcerated individuals for an EIP to reflect the court’s order.
The court gave the IRS until October 8, 2020 to update its website and additionally provided:
Defendants shall also communicate to IRS employees or other federal employees who interact with the public to answer questions regarding EIP in accordance with the guidance posted on the IRS.gov website and the court’s orders.
I know the word is getting out, because we have received calls to the tax clinic from individuals seeking help for their incarcerated family or friends. Similar messages have appeared elsewhere in LITC information site.
Communication with Prison Officials
Before the litigation the IRS had affirmatively gone out to prison officials to make it clear that incarcerated individuals should not receive the stimulus payments and to solicit their support in intercepting any stimulus payments headed to incarcerated individuals. Reversing this message is needed not only to allow the incarcerated individuals to receive the checks but also to keep them from any disciplinary measures that might result from requesting the stimulus payment in the face of the IRS position regarding their entitlement prior to the litigation. The parties again were not miles apart in their request, but the request made by the attorneys representing the incarcerated individuals contained significantly more detail, much of which the court adopted:
the court ORDERS defendants to distribute the following documents to all state and federal correctional facilities for which it maintains any communication channel: (1) a cover letter that includes2 the four main points addressed by plaintiffs in the proposed plan; (2) an electronic version of the simplified paper return (Form 1040/1040-SR) referred to in Rev. Proc. 2020-28 with instructions on how to complete the simplified form; and (3) legal notice, as described below.
The court did not order a specific date by which the this had to occur but ordered the parties to work together expeditiously.
Mailed Notice to Class Members
Here the parties had significant differences of opinion. Plaintiffs’ lawyers pointed out that the IRS has a database of incarcerated individuals updated at least to October, 2019. The IRS argued that it did not have current or last known addresses for individuals incarcerated earlier this year but how have been released. The IRS also said:
in their opposition to plaintiffs’ motion for notice to class, defendants detailed significant obstacles to providing effective individualized notice including outdated addresses, unformatted and invalidated data, and incomplete data. Dkt. 56 at 7. Ordering the IRS to provide individualized notice would force the IRS to reallocate resources from its other commitments to disbursing advance refund payments for eligible individuals. Id. Finally, any mailed notice will not arrive in time to postmark a simplified paper return by October 15, 2020.
The Court accepted the IRS position that it did not have good addresses for everyone but ordered it to send individualized notices to everyone for whom it did have a good address by October 15, 2020. That puts a lot of pressure on the IRS. Of course, there is also a fair amount of pressure on the incarcerated individuals if they want to receive the stimulus payment in 2019.
Deadline to Submit Simplified Paper Returns
The IRS had already moved the deadline for seeking the stimulus payment through its portal from October 15 to November 21 but the deadline for paper returns remains at October 15. Because of their location, incarcerated individuals will struggle to get to an online portal. Plaintiff’s attorneys sought an ability to submit the request for the stimulus payments by paper at a later date.
Based on the IRS granting to community organizations the deadline of October 30, the court granted to incarcerated individuals that deadline as well. This is still a tight deadline but is feasible for many. Of course, missing the deadline does not preclude individuals from obtaining the credit on their 2020 returns filed next year. Since a high percentage of the incarcerated individuals do not have a return filing obligation, getting the stimulus payment through the submission of a form now provides greater relief.
As with the first order, the judge not only acted quickly but provided almost full relief for the incarcerated individuals.
Acting on the momentum of the earlier decisions, plaintiff’s attorneys filed a motion for summary judgment on September 29. The government filed its response on October 7. Plaintiffs filed a reply on October 9 and the Tax Clinic at the Legal Services Center of Harvard Law School filed an amicus brief on behalf of the Center for Taxpayer Rights in support of plaintiffs on that date. Because the court has acted quickly in its prior decisions, this decision could occur very soon.
The government has not explained why it flip flopped regarding incarcerated individuals last spring (and regarding decedents). In testimony last week, the Commissioner suggested to the House Committee before whom he was testifying that this was a question best asked of the Treasury Department. Perhaps the IRS determination of the CARES Act was overruled by Treasury or some higher authority. So far, this mystery remains unexplained. Whoever in the government made the decision to flip flop on this issue in the face of very plain language in the statute is learning that at least the district court in the Northern District of California is not buying their interpretation.