'You’re not supposed to keep that payment': Mnuchin wants stimulus money given to dead taxpayers returned

William Cummings, USA TODAY

Treasury Secretary Steven Mnuchin wants the relatives and estates of dead people who received stimulus checks from the CARES Act to return the money, he told The Wall Street Journal on Tuesday. 

After the government began making direct deposits of up to $1,200 into taxpayers' bank accounts this month, many people reported on social media that deceased loved ones were receiving payments as well and wondered what they should do with the money. 

"You’re not supposed to keep that payment," Mnuchin told the newspaper. "We’re checking the databases, but there could be a scenario where we missed something, and yes, the heirs should be returning that money."

The Treasury Department says it issued more than 89 million direct payments totaling $160 billion in three weeks and that 150 million will be sent out. It's unclear how many payments were made to people who were deceased. 

During an April 17 White House briefing, President Donald Trump said he expected the money, intended to help offset the economic impacts of the coronavirus pandemic, to be returned. 

"Sometimes you send a check to somebody wrong. Sometimes people are listed, they die, and they get a check. That can happen," the president told reporters. "We’ll get that back. Everything we’re going to get back." 

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The president added "it’s a tiny amount" at issue and said the IRS did "a fantastic job" getting the money out in "a few days."

Mnuchin's declaration was the administration's most definitive word yet on the matter. But questions remain, such as whether all such payments need to be repaid and how taxpayers should return the money. 

"We will be issuing guidance on this issue shortly," a Treasury spokeswoman told USA TODAY. 

The effort to claw back some of the funds comes as the administration has called on larger companies to pay back CARES ACT loans intended for small businesses. Mnuchin told the Fox Business Network on Tuesday that ineligible companies that took the loans could face criminal liability. 

"We're not going to be able to check all the loans before they go out the door, because there's over 26,000," he said. "But before we forgive these loans, we'll check every single one over $2 million." 

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"I encourage everybody to look at this and pay back these loans now, so we can recycle the money if you made a mistake." 

The stimulus payments were issued based on people's 2019 tax returns, but because the tax deadline was pushed back from April 15 in response to the coronavirus outbreak, many Americans had not filed yet. So, under the CARES Act, the IRS also determined eligibility based on 2018 returns. That resulted in payments to people who died after their 2018 or 2019 returns were filed. 

Secretary of the Treasury Steve Mnuchin, speaks in the East Room of the White House in Washington, April 28, 2020.

At least some such payments were to be expected because the information the IRS uses to filter out dead taxpayers relies on data from states and is not always up to date. Malcolm Sparrow, a professor of public management at Harvard’s John F. Kennedy School of Government, said given the need to quickly distribute the emergency funds, the government may have been willing to accept that some payments would go to deceased taxpayers. 

"It's perfectly plausible, given the hurry here, and all the political imperatives that they didn't run it by the death file," said Sparrow, who served on a panel to oversee the 2009 American Recovery and Reinvestment Act. 

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Nina Olson, the founder of the Center for Taxpayer Rights and former taxpayer advocate for the IRS, questioned whether the Treasury Department had the power to compel people to return the payments, which are technically a tax credit. Olson cited text of the CARES Act, which says when people file in 2020 the amount of the credit cannot be adjusted "below zero," to argue the IRS would face an uphill battle trying to force people to pay it back. 

"It may be the IRS made a mistake by making the payment to a deceased person. It can certainly ask folks to give the money back. I don’t see the legal authority for adjusting it on the 2020 return," she told USA TODAY.

Most of the stories shared on social media involved a taxpayer who filed a joint return the same year their spouse died. Normally, that taxpayer would be eligible to file jointly for that year and would not have to file as an individual until the following year. Widows and widowers who do not remarry and have at least one dependent can continue to file jointly for up to two more years. 

"I don’t see where the CARES Act says dead people are ineligible. It does say estates are ineligible, but estates are a separate taxpayer," Olson said. "The law says to pay the advance based on the taxpayer’s 2018 or 2019 return, and then reconcile based on the 2020 return."

Last week, IRS spokesman Eric Smith told The Washington Post that surviving spouses may not have to return the funds under certain circumstances. 

"We are aware of all the various issues involving surviving spouses and other heirs and are still working on them," Smith told The Post. 

Olson stressed that Mnuchin said heirs "should return" the money in the Wall Street Journal interview. 

"That’s a far distance from saying, the IRS will assess and collect against you," she said. 

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Payments to deceased taxpayers went out in the 2008 stimulus as well. 

"In this exact same situation in 2008, IRS and Treasury did not ask for the money back," Olson said. The IRS knew such payments would go out and addressed the issue in a FAQ at the time. 

"But they have not done that here. There is no advance guidance, even though it knew from experience this would happen," Olson said. "It hasn’t said whether the IRS will use its enforcement powers to take them back, it hasn’t said whether people should voluntarily pay them back. It’s just inserted more uncertainty into this discussion and made people feel more anxious in an already anxious time." 

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This article originally appeared on USA TODAY: Coronavirus: Mnuchin says checks to dead people should be returned