The IRS updated its guidance, saying that relief payments made to the deceased must be returned to the federal government.
It's quite a shock for grieving families to receive these checks for a loved one who died. It's because of a quirk in a section of the CARES Act that defines who's entitled to a check.
We told you earlier about Robert Lentz of San Francisco. He lost his wife Jacklin to brain cancer two years ago. And now, an eerie reminder.
"It's one of those things that you don't expect to come out of nowhere," Lentz said.
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To his shock, Robert discovered a stimulus check in Jacklin's name deposited in his bank account.
And he isn't alone.
Terry in the East Bay writes, "My father died April 3 and yep, Wednesday his stimulus check for $1,200 was right in his account."
Daryl in the South Bay writes: "My mom passed away a little over a year ago. Today I get a $1,200 check made out to her."
CPA Jim McHale says the IRS is sending out stimulus payments to untold numbers of dead people across the country. "Hypothetically every person who died following the filing of a tax return in 2018 will be receiving a check," McHale says. "I'm guessing it's in the millions, the low millions."
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Why is this happening? Under the CARES Act, Americans receive a check based solely on their tax returns for 2018 or 2019. So if a person died after filing a return in those years, chances are they're getting a check.
"Under the letter of the law, if you filed a tax return in 2018 or 2019, the law says you're entitled to this payment. They drafted these laws so quickly it didn't say 'but if you die in the interim, you're not entitled to a payment,'" says McHale.
McHale says the IRS computer system is so outdated it couldn't filter out taxpayers who have died.
"They are still using computers with black screens and green letters," he says.
Previously an IRS spokesperson told 7 On Your Side the agency had no rules on what loved ones should do with the extra payment. However, Treasury Secretary Steve Mnuchin recently told The Wall Street Journal that families must return the money.
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"The final word on this is not out. We believe based on Mnuchin's comment... they expect to get the money back," says McHale.
And a general IRS rule warns the agency could charge interest and penalties on any payment the IRS makes to you by mistake. McHale recommends returning these checks.
"You could end up having to pay back, say $1,500, $1,600 on a $1,200 check if it ran its whole course," he says.
But returning a payment can be a hassle. According to the IRS, overpayments should be mailed back or reversed at the bank. Then consumers should call the IRS to say why it was sent back.
Try doing that when offices are closed.
"It's always better to nip it in the bud and always better not to have a problem with the IRS in the long run, and stay on their good side. And if you received a payment, especially if you want to return it to help everyone out in this time of crisis," McHale says.
Some CPAs advises hanging on to the payments until the IRS came out with official guidance. But now we know, you have to send it back.
The U.S. Treasury Department also tweeted on Wednesday that the living relatives of deceased persons should return the money to the Treasury.
"Deceased and incarcerated individuals do not qualify to receive Economic Impact Payments. See FAQ #41 to learn how to return an inadvertent payment," the tweet reads. It links to the IRS's updated "Economic Impact Payment" page, with instructions on how to return the money.
There, the IRS states: "A Payment made to someone who died before receipt of the Payment should be returned to the IRS by following the instructions in the Q&A about repayments. Return the entire Payment unless the Payment was made to joint filers and one spouse had not died before receipt of the Payment, in which case, you only need to return the portion of the Payment made on account of the decedent. This amount will be $1,200 unless adjusted gross income exceeded $150,000."
The process for returning the money differs if the deceased person received a check or a direct deposit.
According to the IRS, here's what to do...
If the payment was a paper check:
- Write "Void" in the endorsement section on the back of the check.
- Mail the voided Treasury check immediately to the appropriate IRS location listed below.
- Don't staple, bend, or paper clip the check.
- Include a note stating the reason for returning the check.
If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:
- Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
- Write on the check/money order made payable to "U.S. Treasury" and write 2020EIP, and the taxpayer identification number (social security number, or individual taxpayer identification number) of the recipient of the check.
- Include a brief explanation of the reason for returning the EIP.
California residents should use the Fresno address:
Fresno Refund Inquiry Unit
5045 E Butler Avenue
Mail Stop B2007
Fresno, CA 93888
Take a look at more stories and videos by Michael Finney and 7 On Your Side.
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