Confusion abounds for individuals who have received multiple relief payments from the IRS—including whether they will be penalized for keeping the extra money.
Last spring, the IRS paid out more than $69 million in erroneous stimulus checks under the CARES Act (Public Law 116-136) within two months of its enactment, many stemming from changes in marital status, according to the internal IRS watchdog that tabulated them.
Recently some people who receive Social Security benefits have received duplicate payments under March’s $1.9 trillion relief law (Public Law 117-2).
Tax and legal professionals aren’t entirely sure what the consequences of holding onto erroneous payments will be.
In online FAQs—guidance that is subject to change and lacks legal authority—the IRS tells people who believe they have received a payment erroneously to “return one of the payments” using a step-by-step process outlined in another FAQ. A spokesperson didn’t comment when asked whether the agency would penalize people for holding onto their mistaken checks, if returning the funds is entirely voluntary, or whether the IRS will release more guidance.
A spokesperson for the Treasury Inspector General for Tax Administration said the watchdog is aware of more recent situations in which people are receiving duplicate stimulus payments and will include the issue in an upcoming report on the IRS’s distribution of this round of checks.
The agency should give more specific, binding guidance telling individuals to return the money and document everything, said Annette Nellen, who directs San Jose State University’s graduate tax program. Many people may not even be aware that they have erroneously gotten more than they are due, she added, and those who do realize it may decide to hold onto the money because they need it or “are going to think, ‘am I just the fool that returns it?’”
Given the more general confusion surrounding the nuances of the relief payments, it’s unrealistic for the agency to expect people, especially lower-income individuals, will realize they have gotten a duplicate payment and then navigate the IRS website to figure out how to give it back, said Jennifer Burdick, a supervising legal attorney at Community Legal Services of Philadelphia.
Two of her clients have gotten duplicate payments, Burdick said, adding that she hopes the IRS addresses this with some leniency and ramps up its outreach and communication on the issue.
“This is causing a lot of confusion,” she said, adding that Community Legal Services of Philadelphia is advising people not to spend the money and may ultimately recommend they pay it back.
The agency’s authority to recoup wrongly dispersed funds may depend on how they’re classified.
“The answer to that question is really going to depend on some very technical legal analysis on what are these payments exactly,” said Ted Afield, who directs the low-income taxpayer clinic at the Georgia State University College of Law.
Specifically, he said, whether they are rebates or advance payments and which year they relate to—"the importance of answering that question is that it dictates whether or not the IRS can use their deficiency procedures,” with which the agency charges people with unpaid and potentially disputed taxes, he said.
If it isn’t considered a rebate claimed on a tax return, the IRS is far more limited in its ability to take back the money, said Afield and Caleb Smith, who directs the University of Minnesota’s tax clinic.
“They have to use a much more constrained method of getting it,” such as asking politely for the money or offsetting future refunds, Smith said.
If individuals record an outsize stimulus payment they’ve received when they file their tax returns and compare it with the amount for which they were eligible, they reduce the latter amount by what they got—but not below zero—Smith added.
Still, he said he would advise people to pay the duplicate money back, and that individuals shouldn’t cash checks if they know they shouldn’t have received them.