Why the IRS Sent Payments to the Deceased: Language vs. Logic

Published: July 01, 2020

Federal Market AnalysisCoronavirus (COVID-19) PandemicIRSTREASWaste, Fraud, and Abuse

According to GAO’s most recent audit of agency COVID-19 response, IRS sent $1.4B in stimulus payments to deceased individuals in part due to the language of the law.

Key Takeaways:

  • IRS sent $1.4B in CARES Act economic impact payments to deceased individuals.
  • Interpretation of the law was a major factor in allowing the payments to be sent, but the process was changed for the fourth batch of payments.  
  • GAO recommends that IRS develop a plan to reclaim the funds.
  • GAO also recommends that Congress provide Treasury with access to SSA’s full set of death records for use in reducing improper payments across the board.

Last Friday, U.S. Comptroller General, Gene Dodaro, testified before the House Oversight and Government Reform Committee’s subcommittee for the coronavirus crisis. Dodaro summarized GAO’s most recent 400+ page report on opportunities to improve the federal response and recovery for COVID-19.

The CARES Act directs GAO to provide oversight and regularly report on federal agencies’ efforts to provide relief and recovery for the COVID-19 pandemic. GAO’s report and Dodaro’s testimony provide key actions taken by agencies to address the pandemic, lessons learned to date regarding federal response efforts, and GAO’s recommendations for improvement.

Specific to Treasury’s response efforts, the IRS rapidly disbursed $269B in economic impact payments to 160.4M individuals. The Treasury, IRS and the Bureau of the Fiscal Service (BFS) faced challenges in delivering payments to some individuals, and encountered other risks such as fraud and improper payments to ineligible recipients. As of April 30th, the Treasury Inspector General for Tax Administration (TIGTA) identified nearly $1.4B had been sent to decedents. The first three batches of payments accounted for 72% of all payments disbursed as of May 31st.

Typically, the IRS uses third-party data, like the SSA Death Master File, to prevent fraudulent tax refund claims.   

However, this was not done with the first three batches of payments due to the language of the CARES Act in regard to economic stimulus payments.

The CARES Act directed payments to taxpayers who filed a 2018 or 2019 return, or allowed IRS to use information from taxpayers’ 2019 Social Security or Railroad Retirement Benefit Statement. An IRS working group raised the question of potential payments to decedents in March when the CARES Act legislation was being drafted. According to GAO’s findings, “IRS counsel subsequently determined that IRS did not have the legal authority to deny payments to those who filed a return for 2019, even if they were deceased at the time of payment. IRS counsel further advised that the agency should exercise discretion provided for in the CARES Act to apply the same set of processing rules to recipients who had filed a 2018 return but not yet a 2019 return.” On this basis, IRS officials told GAO they did not exclude decedents in their programming requirements.

The Act also mandated that impact payments be distributed as rapidly as possible. To comply, Treasury and IRS used many of the protocols and procedures developed in 2008 for stimulus payments. Filtering against death records was not one of the processes used in 2008.  However, when GAO identified this weakness in IRS processes in 2013, IRS implemented the use of death records for updating taxpayer information to help identify and prevent improper payments. IRS has been using this new process for the last seven years.

Treasury officials told GAO that the department was unaware that payments were being sent to deceased individuals and upon learning that information, it worked with IRS to determine that a person is not eligible to receive a payment if he or she is deceased as of the date the payment is to be paid. IRS and BFS used death record filters for the fourth batch of CARES Act payments. IRS also posted on its website in early May instructions for returning payments sent to decedents or incarcerated individuals. However, IRS has not developed a plan to reclaim the funds.

GAO and Dodaro recommend that IRS should develop a cost-effective plan for notifying ineligible recipients how to return payments. They also recommend that Congress provide Treasury with access to SSA’s full set of death records and require that Treasury and its bureaus consistently use it to help reduce improper payments.