What I worry about when I think about the IRS and the CARES Act – Part III

Nina E. Olson returns with further thoughts on the CARES Act.

I wasn’t planning to write another post about the CARES Act this week, but new things have popped up that I am now worrying about.  We’ve seen a dizzying about face by Treasury on a crucial issue.  Earlier this week, Bob Kamman, in a comment to Part I of this blog series, noted the IRS had issued a news release with the following statement:

People who typically do not file a tax return will need to file a simple tax return to receive an economic impact payment. Low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return will not owe tax.

The IRS statement caused a huge uproar, causing members of Congress to write the Secretary and urging a reversal of this position.  It did not take long for that reversal to come:

The U.S. Department of the Treasury and the Internal Revenue Service today announced that Social Security beneficiaries who are not typically required to file tax returns will not need to file an abbreviated tax return to receive an Economic Impact Payment. Instead, payments will be automatically deposited into their bank accounts. 

We can now all breathe a sigh of relief, at least with respect to this issue.  But because the IRS’s original position, that Social Security beneficiaries with little or no income were going to have to file “simple” returns, seems to fly in the face of provisions in the CARES Act, I think it is important to go through the analysis of why the IRS even took this position in the first place, if only so we don’t have to go through this again.


I have no first-hand knowledge of the deliberations (I’m still under the one-year prohibition against contacting IRS for purposes of seeking to influence. . . ). But some possible explanations for the IRS’s original position have occurred to me.

First, there is the IRS culture itself.  It is a very conservative, enforcement-minded agency that tilts toward preserving the status quo.  In an environment where every news cycle brings the Secretary making yet another promise – we’ll get payments in 2 weeks!  We’ll create a new app for deposit account information! – the IRS must be reeling.  In that context, it makes sense the agency response to Economic Stimulus legislation is look back to what was done before, in 2008.

What the IRS failed to factor in, however, is that 2020 is not 2008!  We are in the midst of a pandemic that threatens not only individuals’ economic health but also their physical health.  People are ordered not to go outside, with few exceptions, and the entities that assist low income taxpayers with their filing requirements – TCE, VITA – are shuttered.  IRS employees are not available to assist either, and digital services, for the elderly and low income population, are not a very good solution. 

The IRS either failed to recognize the impact of the difference between 2008 and 2020 or recognized it but decided it was better to put the burden on vulnerable taxpayers rather than a risk a different approach.  The risks inherent in the IRS’s archaic technology infrastructure reinforce the IRS’s innate resistance to change.  If a single mistake is made in programming a new system, it might bring down the filing system or lock employees out of most major databases (this happened in April 2018).  Worse, it could create a back door for hackers.  From that perspective, it is better to go with what you know than what you don’t know.

The IRS’s Enforcement Mindset Undermines a Focus on Taxpayers’ Circumstances

The IRS’s conservative approach gets additional justification from the IRS’s enforcement mindset.  What if someone gets more advance recovery rebate than they are entitled to? Of course, Congress has already contemplated and accepted that eventuality, when it authorized the IRS to use 2018 tax return information if the 2019 return isn’t filed.  And section 6428(e)(1) provides there will be no recapture below zero. 

But still, it appears the IRS was worried that it cannot tell whether a low income nonfiling SSA/RRB taxpayer’s filing status is single, head of household, married filing jointly, or married filing separately.  It also cannot tell whether these taxpayers have any children qualifying for the extra stimulus payment of $500.  As a result, it may have believed it cannot accurately calculate the ESP amount because the AGI limitations for the payments are based on filing status.  Therefore, it may have reasoned, the IRS should require these taxpayers to file an ESP-Only return to get their ESP. 

It is ironic that the IRS would insist on a return to know the filing status when under its own procedures elsewhere it is perfectly comfortable assuming a taxpayer’s filing status in the absence of a return.  Under IRC § 6020(b), the Secretary has the authority, where a taxpayer has failed to file a required return, to make a return “from his own knowledge and from such information as he can obtain through testimony or otherwise.”  In administering this provision, the IRS generally assumes a filing status of single, no dependents; it relies on income reported on W2s, 1099s and other schedules, and it computes taxes owed based on those amounts.

The CARES Act , however, authorizes the Secretary of the Treasury to issue a payment to below-filing-threshold Social Security and Railroad Retirement beneficiaries without a tax return.  The section may not be perfectly drafted, but the gist is clear enough.  Let’s walk through section 6428(f) as enacted by the CARES Act:

Step 1:  Section 6428(f)(1) provides that in making an eligibility determination, the Secretary shall look to the 2019 tax year and treat the taxpayer as having made a tax payment equal to the advanced refund amount.

Step 2: Section 6428(f)(2) defines the advance refund amount as the amount the individual would be entitled to if the credit had been allowed in the tax year at issue (e.g., 2019).

Step 3: Section 6428(f)(3)(A) provides the Secretary shall refund or credit the overpayment created by the advance refund amount as rapidly as possible.

Step 4:  Section 6428(f)(5)(A) provides that in making the refund or credit “determination” as rapidly as possible, if the individual has not filed a 2019 return,  the Secretary may use the 2018 return (i.e., 2018 would be the tax year at issue).

Step 5:  Section 6428(f)(5)(B) provides that in making the refund or credit “determination” as rapidly as possible, if the individual has not filed a 2018 return either, then the Secretary may “use information with respect to such individual for calendar year 2019 provided in – (i) Form SSA-1099, Social Security Benefit Statement, or (ii) Form RRB-1099, Social Security Equivalent Benefit Statement.”

Now, this provision clearly implies, if not expressly states, that Congress intended the Secretary to use the information on forms SSA-1099 and RRB-1099 to calculate the amount of the rebate for below-filing-threshold nonfilers.  There is no requirement that a return be filed to make that calculation. 

At this point in the filing season, the IRS has a ton of information about taxpayers’ income.  At least with respect to the 2018 tax year, it has Forms W-2, 1099 series, and K-1 information for taxpayers.  For 2019 it has likely received almost all W-2 information and most 1099-Misc-Nonemployee Compensation returns.  I can hear IRS enforcement personnel saying, “But we can’t just use this information to measure eligibility; we don’t know about cash earnings” (the “shadow economy”).  Well, cash earnings are a problem for all taxpayers.  A taxpayer who files a return and reports W-2 income is just as likely to have unreported cash earnings as a taxpayer who receives SSA benefits and has no other reported income.  So there is no basis to worry about cash earnings with respect to nonfiling SSA/RRB recipients alone.  It is a potential problem with everyone, filer or nonfiler.  (I think this is what Donald Rumsfeld called a “known unknown.”)

Understanding the Characteristics of the Low Income Nonfiling SSA/RRB Population Addresses Overpayment Concerns

What, exactly, is the IRS worried about with these SSA nonfilers?  For the most part, SSA recipients have so little income that their filing status won’t matter – their income is below the AGI thresholds for all filing statuses.  Look at the SSA data:

  • Social Security is the major source of income for most of the elderly, and comprises 33 percent of income for all elderly persons.
  • For 50 percent of married couples and 70 percent of unmarried persons, Social Security Old Age benefits constitute 50 percent or more of their income.
  • For 21 percent of married couples and about 45 percent of unmarried persons, Social Security Old Age benefits constitute 90 percent or more of their income.

So let’s just do the math.  Social Security says the average monthly benefit in 2019 for retired persons was $1,471, or $17,652 annually.  If Social Security constituted 50 percent of that person’s income, the AGI would be $35,304.  If it constituted 90 percent of the individual’s income, the AGI is $19,613.  Both are well below the $75,000 AGI beginning phaseout threshold.

The average monthly benefit in 2019 for a disabled person was $1,236.  Note that disability benefits are means-tested.  That is, in 2020, if you make more than $1,260 per month (over a 36 month period), your benefits will cease.  These amounts are well below the AGI threshold for all filing statuses under the CARES Act. 

Thus, the IRS could easily calculate a $1200 benefit for each person receiving Social Security Old Age and Disability benefits.  The only thing we have to worry about here is whether the SSA recipients have dependent children.  If you receive Social Security and have even a little earned income, you are already probably filing in order to get the EITC and CTC.  We are left with a very small group of SSA recipients who have no other income at all and have children.  Given the urgency of getting some stimulus into the economy and into the hands of folks, it seems to me the best approach would be to automatically send the $1200 to each of these SSA nonfilers and then ask them to file a return to get the qualifying child portion of the stimulus.  The IRS return processing pipeline can automatically adjust for the amount of stimulus already paid out via math error authority.

Don’t Forget the Vets and Supplemental Security Income Recipients

This same approach can be applied to recipients of Veterans benefits, as well as recipients of Supplemental Security Income (SSI).  Once the IRS does the programming to accommodate automatic SSA/RRB payments, it could adopt the “no return necessary” approach for these additional populations.  There is no requirement in the CARES Act for a return – the IRS could exercise its administrative discretion here.  On the other hand, if the IRS believes it needs statutory authorization for automatic payments to beneficiaries of VA and SSI, then it should request it, ASAP.

Regarding SSI, although the IRS does not receive a 1099 reporting those payments, the Social Security Administration does know who gets how much SSI, and IRS could enter into an agreement with SSA to obtain that information in order to do matching.  The IRS has not done so previously, and I cannot tell whether SSA is reluctant to share that information or the IRS is not wanting to ask.  This is where the Administration should step in and make sure the agencies work with each other.  The goal is to get these payments out as quickly as possible to the neediest in our population.  As I noted in Part 2 of this blog series, SSI recipients are some of the most vulnerable among us.

Going Forward: What can we learn from this?

Congress knew how confusing it was for low income populations during the 2008 filing season, when they had to file ESP-only returns.  In the CARES Act, it tried to remedy the flaw in the 2008 program with the language discussed above.  I am very relieved that Treasury and the IRS have reversed course and adopted the return-free approach.  This saves taxpayers and the IRS a lot of anxiety, phone calls, follow ups, and confusion, at a time when no one needs any of that.  I realize it may require more programming for the IRS to accomplish this, but what the IRS builds today can be a foundation for future payments and other initiatives.  It is using its data in a taxpayer-friendly way, not just to assess taxes but also to assist taxpayers.

What is disturbing about this affair is what it tells us about the agency – how, being under stress, it reverted to the past and didn’t recognize how doing so imposes unacceptable burdens on vulnerable taxpayers.  We will all have opportunity to reflect on this as we get back to normal, someday, and can focus on the IRS modernization, customer service, and training plans required by the Taxpayer First Act.

Reducing a Restitution Order

We welcome first time guest blogger, Meagan Horn. Meagan practices in Dallas, Texas as counsel with Thompson & Knight LLP.  She focuses her practice on tax controversy matters, at both the state and federal level.  She has also assisted the tax clinic at Harvard in some amicus brief projects.  Keith   

On March 6, 2020, the Seventh Circuit affirmed a district court decision allowing the government to remove certain restitution obligations of a taxpayer arising from his tax fraud conviction. (United States v. Simon, 2020 WL 1074729 (7th Cir. 2020), aff’g United States v. Simon, 2019 WL 422447 (N.D. Indiana 2019)). At first blush, it is a fairly unremarkable case with a defendant taxpayer on the lucky side of governmental restitution amendments, yet still shooting argumentative blanks at an issue that, at this point, just needs to be paid up and moved on from. 

But just as you are about to file the case into the trusty blue filing cabinet under your desk, you see the court has slipped in a little procedural law cliffhanger.  In just five sentences near the very end of the opinion, the court introduces the most curious of questions. Specifically, the court points out that the convicted defendant can’t reduce his restitution obligations since there has not been a change in his economic situation. Then it asks, if there hasn’t been any change to the defendant’s economic situation, how is it that, under these facts, the government had statutory authority to ask the court to make the restitution amendments?

It would seem a no brainer to allow a victim to seek to reduce the restitution requirements of the defendant, but as it turns out, it’s not that easy.


A brief background is in order.  James Simon was convicted in 2010 of tax fraud and financial aid fraud. Simon was sentenced to six years in prison and three years of supervised release, and ordered to pay restitution to various parties of just over one million dollars.  Most of the ordered restitution was owed to the Internal Revenue Service, but some of the restitution was to be paid to various private schools that had been defrauded via the financial aid claims.  Several years later, the government filed a motion to amend the restitution order to reduce required payments to certain of the private schools. The court approved the motion the following day.

Approximately seven months later, Simon filed a pro se motion with the district court requesting reconsideration of the matter. He contended he did not receive a copy of the government’s motion and its attachments until several days after the district court had already granted the restitution amendments. In addition to rehashing several arguments he made at the sentencing phase, he raised concerns with the documentation that had been used to support the restitution amendments.  He further claimed his right to due process under the Fifth and Fourteenth Amendments had been violated when the court allowed the restitution order to be amended without his participation.

The district court quickly dismissed each of Simon’s concerns, noting Simon couldn’t relitigate issues raised at the sentencing phase and dismissing the documentation concerns. Further, the district court explained that for Simon to prevail on a due process claim, he must show a cognizable property interest, a deprivation of that interest, and a denial of due process.  Citing Dyab v. United States, No. 09-cr-0364 (1), 2018 WL 3031944, at *1 (D. Minn. June 19, 2018), the district court found that Simon could not have suffered a deprivation of his property interest, given the restitution order was amended to his benefit.

Simon appealed, raising new issues and rehashing old ones that could have been or should have been raised at the sentencing phase.  Without much discussion, the Seventh Circuit found each of Simon’s arguments were inappropriate at this phase and/or untimely and therefore waived. 

In concluding, however, the Seventh Circuit made an interesting observation.  What statutory avenue permitted the government to adjust the mandatory restitution order in the first place?  When the court asked the government what authority it relied on to adjust the restitution order, it cited 18 U.S.C. §3664(k). However, the court had dismissed Simon’s request to adjust the restitution order, finding that his economic situation had not changed; the Seventh Circuit observed that such section would be as inapplicable to the government as it was to Simon.  Nevertheless, the court found that Simon’s challenges were untimely, and found further comfort in the fact that Simon’s order was amended to his benefit. The issue was moot.  The end, they said.

Wait, what? Things just got juicy! I just sat up and started pushing too large of handfuls of popcorn into my mouth. And granted, I know it’s not the court’s job to answer these sorts of questions if they don’t have to.  But, still, what a cliffhanger!

In general, 18 U.S.C. § 3664 provides the procedures for issuance and enforcement of restitution.  §3664(o) declares restitution orders final judgments, with only a handful of exceptions.  Namely, the defendant has the right to file a timely appeal, and the order may be amended in certain situations when the victim’s losses are not known or quantifiable at the time of sentencing, when fines are also imposed, or when the defendant is in default on his or her restitution obligations. In addition, and this is the crux of the court’s discussion, a restitution order may be adjusted under §3664(k) when the defendant’s economic situation has changed.  So when the defendant’s economic situation hasn’t changed, and there aren’t any of the specific scenarios addressed in §3664(o), what does permit the government to request a change to a defendant’s restitution obligation?

Luckily, Judge Hamilton could sense the discomfort that such a cliffhanger would cause and wrote a concurring opinion to fill in a few gaps to, as he put it, “offer not a fully satisfactory answer but in essence a tracing of steps so that the choices are clear.”

After analyzing the inapplicability of §3664(o) in this particular situation, Judge Hamilton first offers as possible statutory authority for the amendments the government sought, §3664(m)(1)(A), which states, “[a]n order of restitution may be enforced by the United States in the manner provided for in subchapter C of chapter 227 and subchapter B of chapter 229 of this title, or by all other available and reasonable means.”  Judge Hamilton points out that the cross-references offered in §3664(m) give the government the authority to initiate enforcement actions or modifications of restitution and clearly contemplate that district courts will hear such matters.  He then offers, “with diffidence,” an argument that the district court simply has inherent authority to hear such matters. He rightly notes that the statutory references and cross-references providing specific authority to specific fact patterns weigh against an inherent authority argument (not to mention the general hesitancy of courts to apply inherent authority).  Nevertheless, he concludes, it is clear that someone must be in charge of hearing such matters, and no one is better suited to hear such issues than the court that imposed the sanctions in the first place.  He offers that if this analysis is not satisfactory, perhaps legislation should be enacted to make it clear.

Judge Hamilton is right – there is no explicit statutory authority for the government to reduce a defendant’s restitution obligation in a situation such as Simon’s. And I’m not convinced that §3664(m) does the trick. In this case, however, I’m not troubled by an argument that the district court has inherent authority to oversee adjustments of the type at issue here.  The district court rightfully noted its limitation to adjust a restitution order to the detriment of the defendant.  Inherent authority must be exercised with restraint, but here, I have trouble seeing any harm that could ever arise from a court exercising authority to adjust its own restitution order at the request of a victim to the benefit of a defendant.  Given that, it seems entirely appropriate to read in a district court’s inherent authority to address these sorts of issues, and I see no need to bog the code down with a legislative fix. What do you think?

Part II: What I Worry About When I Think About the IRS and the CARES Act

Contributor Nina E. Olson returns with further thoughts on the CARES Act.

Update:  As this blog went to press, the IRS released a statement noting that “People who typically do not file a tax return will need to file a simple tax return to receive an economic impact payment.”  This undermines one of the improvements over 2008 that I identify in the following post.  I fully understand the challenges of programming in the middle of the filing season, and that such programming and coordination between the Social Security Administration, IRS, and Bureau of Fiscal Services would delay payments to this part of the population.  It seems to me a delay in payments for this group would be more than offset by the fact that this population would actually receive the payments.  We know from 2008 that most of the taxpayers in this group never filed the “simple” tax return at all.

Some Silver Linings in the CARES Act: Treatment of Social Security and Railroad Retirement Beneficiaries

In 2008, the Economic Stimulus Act defined ESP eligible taxpayers as those with at least $3,000 of “qualifying income,” which included Social Security benefits.  Taxpayers did not need to have taxable income in order to receive the ESP.  However, all taxpayers were required to file a tax return in order for the IRS to issue the ESP.  In 2008, in addition to mailing over 130 million notices to TY 2006 filers, the IRS mailed information packages to 20.5 million people who received Social Security or Veterans benefits and who did not file a TY 2006 return, reminding them to file a 2007 return in order to claim the ESP.  These returns were known as ESP-only returns.


IRS programming enabled the issuance of the 2008 ESP payment automatically upon e-filing of the tax return.  However, the IRS systems required at least $1.00 of adjusted gross income (AGI) to be processed.  Many people receiving Social Security and other benefits did not have any AGI; the IRS advised them to write in $1.00 of AGI on their “ESP-only” returns, and Treasury issued guidance that such an entry would not violate the “penalties of perjury” signing statement on the return.  For many retirees, the small amount of the refund may not have justified the additional step of return filing; others may have found it confusing.  As of June 7, 2008, the IRS had received 7.7 million ESP-only returns out of a projected 20.5 million eligible.

With the CARES Act, the good news is that Social Security and Railroad Retirement beneficiaries whose income is below the filing threshold will no longer be required to file an ESP-only return. Instead, as I recommended in my June 19, 2008 testimony before the House Ways and Means Subcommittees on Social Security and Oversight, Congress has instructed the Secretary to issue the advance recovery rebates to “any account to which the payer authorized, on or after January 1, 2018, the delivery of taxes under this title or a Federal payment (as defined in Section 3332 of Title 31 United States Code.”  31 USC 3332 requires all Federal payments made after January 1, 1999 to be electronic funds transfers (EFT), subject to waivers.  “Federal payments” includes “benefit payments.”  31 USC 3332(j)(3)(C).  (Interestingly, tax refunds and payments are excluded from the EFT requirement.)  Social Security recipients are now required to utilize EFT, either via a bank account or a low-fee debit card, known as Direct Express.

As it did in 2008, the IRS can utilize SSA/RRB data to identify nonfilers who receive SSA/RRB payments and have income below the filing threshold.  But unlike 2008, in 2020 these individuals can receive their advance recovery rebate in the same manner they receive their SSA/RRB benefits.  They do not need to file a return to receive the rebate.  This is a very taxpayer-friendly change, and it also reduces the IRS workload significantly.  (Actually, it is the Bureau of Fiscal Services that processes government payments, including tax refunds and Social Security/Railroad Retirement benefits.  The relevant agencies provide the information to BFS, which then disburses funds – either in the form of EFT or paper checks.)

More Good News:  the CARES Act Refund Offset Provisions

In my 2008 testimony I discussed the problem of refund offsets as it applied to the advanced ESP.  If a taxpayer has an outstanding tax liability from prior years, that refund will automatically be offset against that debt.  IRC section 6402(a).  Taxpayers experiencing economic hardship can request an override (or bypass) of the offset and, if eligible, will receive a manual direct deposit of funds.  (See IRM and  However, in 2008, despite zealous advocacy by the Taxpayer Advocate Service, the IRS did not allow either manual refunds or offset bypass refunds of the ESP in cases of economic hardship, except where the taxpayer was a victim of identity theft or refund fraud.  The IRS did not publicize this decision, which increased the number of angry calls from taxpayers wondering where their ESP payment was.  This decision was inexplicable, given the reason for the ESP was the overwhelming economic crisis of 2008.

Fortunately, saner minds have intervened with the 2020 legislation, which explicitly states that the advanced recovery rebate shall not be offset against outstanding federal tax debt.  The provision in the 2008 legislation barring offsets for federal debt under the Treasury Offset Program (TOP, administered by BFS) is carried over to the 2020 legislation.  It appears offsets will be permitted child support arrearages.

But, But, But:  Some omissions in the legislation

Notwithstanding these improvements, there are some significant omissions in the current legislation.  First, for some reason, the legislation omits mention of benefits paid by the Veterans Administration (VA), including disability payments.  In 2008 the IRS worked with the VA in the same manner it worked with Social Security Administration (SSA), and identified those nonfiling VA beneficiaries whose income was below the filing threshold.  Yet the VA is not included in the matching program established for SSA/RRB beneficiaries under the 2020 CARES Act.  Thus, it appears these VA beneficiaries will have to file an ESP-only return, as in 2008, in order to receive the advance recovery rebate,.  This is an unnecessary burden on a vulnerable population as well as on an over-stretched IRS.  I hope Congress will correct this oversight in supplemental legislation. 

Second, a similar omission exists for Supplemental Security Income (SSI) recipients – these are folks who are aged, blind, or disabled and have little or no income.  The program is funded by general tax revenues and provides cash to meet the most basic needs of food, clothing and shelter.  SSI recipients are among the most vulnerable populations in the US – and they are among the most at-risk for complications from coronavirus infection.  The matching program established for SSA/RRB beneficiaries could easily apply to these folks.

And then there is the group of taxpayers whose income is below filing threshold but who do not yet receive SSA or RRB.  How are these taxpayers to receive the advanced recovery rebate?  Will they have to file ESP-only returns, as in 2008?  How will the IRS let these taxpayers know about the filing requirement?  Who will help them with return preparation in this coronavirus-impacted environment?

More Buts:  Some implementation issues

New IRC § 6428(f)(6) requires the Secretary to send a notice to taxpayers within 15 days of issuing the advance recovery rebate, informing the taxpayer of the amount of the rebate, the method by which it was paid, and providing an IRS phone number the taxpayer can call in case the payment is not received.  This notice is to be sent to the taxpayer’s last known address (LKA) per IRC § 6212.  The LKA is the address on the taxpayer’s most recently filed and “properly processed” return, unless the IRS has been given “clear and concise notification” of a different address.  Rev. Proc. 2010-16.  Now, the IRS cuts itself a lot of slack on what it considers a “properly processed” return or clear and concise notification.  It gives itself 45 days from proper processing to update the taxpayer’s address on record – but for returns that are filed before the due date of the return, the 45-day processing period begins on the due date of the return!  And during filing season it will take even longer to update the address of record based on new return filings:

Due to the high volume of returns received during the filing season, if a taxpayer provides new address information on a Form 1040, 1040-A, 1040-EZ, 1040 (NR), 1040 (PR), 1040-SS, or 1040-X that is received in processible form by the Service after February 14 and before June 1, the return will be considered properly processed on July 16.

What does all this mean for the 2020 filing season and ESP issuance?  Well, first, the IRS will have until August 30th to update the address on any 2019 return filed before the extended due date of July 15, 2020.  Second, if taxpayers or nonfilers wanted to update their LKA orally, it is doubtful  they will get through on the reduced-capacity phone lines or that anyone would be at the IRS sites to process faxed or mailed Forms 8822, Change of Address.  Third, taxpayers whose returns are held up in processing – for identity theft, or questionable refund review – won’t have their addresses updated until 45 days after their processing issues are resolved – which can take months.  So it is very likely that tens of millions of ESP notices will go to old taxpayer addresses.  Which means the IRS should brace itself for a lot of phone calls from taxpayers.

What address can the IRS use for nonfilers who receive SSA/RRB benefits?  The address the Social Security Administration has on file is not the IRS’s last known address.  Any address the IRS has on file for these taxpayers is likely years if not decades old.  The same issue arises, to a lesser extent, where the advance recovery rebate is calculated based on the 2018 return.  As noted above, the taxpayer may have moved since the 2018 return was filed.  Moreover, the bank account to which a 2018 refund was paid may be closed, further delaying the stimulus payment as the IRS is notified by the bank and then issues a paper check.

Finally, what happens with returns that are filed with a balance due?  The IRS will not have financial account information with which to make an EFT.  Will the IRS issue a paper check?  Will it use the 2018 account if that tax year involved a direct deposit refund?  By establishing January 1, 2018 as the date to begin determining the deposit account, the legislation appears to contemplate this approach.

Many low income taxpayers who receive sizable refunds or who are unbanked utilize Refund Anticipation Loan (RAL) or Refund Anticipation Check (RAC) products, which create a temporary bank account in the taxpayer’s name so the taxpayer’s refund can be paid into it.  The taxpayer does not control this account and thus any TSP paid into this account would not reach the taxpayer.  In 2008, the IRS used the RAL/RAC indicator on a tax return to trigger the issuance of a paper check to these taxpayers, thereby delaying receipt of the ESP, which in turn led taxpayers to call the IRS.  This issue will also bedevil taxpayers and the IRS in 2020.

Additional Challenges:  Educating and notifying the public about the Stimulus Payments

By now, unless you have been living under a rock for the last six weeks, everyone knows that a check for $1200 or more is coming one’s way.  That, of course, is not quite accurate, and in 2008 it was the nuances that caused a lot of confusion.  The CARES Act requires the Secretary to launch a public awareness campaign in coordination with SSA and other federal agencies to inform taxpayers about the rebate, including information for taxpayers who have not filed a Tax Year 2018 or 2019 return.  As in 2008, the advance recovery rebate is not only an effort to get dollars into the hands of consumers to meet basic human needs and stimulate the economy but also an effort to calm consumer nerves and buoy consumer confidence.  Thus, getting the message out about the ESP should be a major focus. 

In 2008, the short message was, you will get money, soon.  The more nuanced message was conveyed in twenty pages of FAQs and a 7 minute podcast (by me) to explain all the provisions and exceptions.  The short message went viral, if you will, promoted through advertising by diamond merchants, department stores, auto dealers, and electronics stores enticing taxpayers to spend stimulus payments on their products.  While the 2020 ESP is designed to help people through the economic crisis arising from the coronavirus, and thus is more likely to be spent on basic human necessities such as housing, food, and medicine, this will not stop promotions that over-promise eligibility and lead to confusion.

Moreover, in 2008, the organized identity theft and refund fraud scams had not yet reached their peak.  Today, these scams are rampant and at a much higher level of sophistication.  (In fact, as I write this, a call came on my landline voice mail, telling me that there was a certified cashier’s check waiting for me and I just had to call back to receive it.  And USA Today is already reporting on scams.)  Any information campaign must warn against these scams – with explicit instructions about what to do if you suspect a scam.  This would be a good use of the toll-free number Congress has required the IRS to establish so taxpayers can report problems with stimulus payments.  Of course, the IRS will have to have people available to answer the calls – easier said than done when trying to protect employees from the coronavirus, but the risk of harm to taxpayers justifies staffing that phone line to the fullest extent possible, both to counter the dissemination of inaccurate information and to protect taxpayers from fraudulent scams.

The information campaign also should provide information to taxpayers about ways they can have their returns prepared for free – whether by VITA and TCE if they re-open, or by Free Fillable Forms or Free File. As the virus recedes (we hope this summer), the IRS should also consider holding Free Tax Return Preparation days in its Taxpayer Assistance Centers, with returns prepared by IRS employees; by utilizing appointments, social distancing and protective equipment such as masks and gloves, it can minimize risk for employees and taxpayers.  In addition, the IRS should work with VITA sites to enable them to utilize remote interview and preparation software, just as physicians are doing in this crisis.  (This technology will be especially helpful, long after the virus has receded, for assisting rural and home-bound taxpayers.  The VITA grant program authorized under the Taxpayer First Act could really jump-start the use of this technology.)

Finally, in 2008, to help inform taxpayers about the status of their economic stimulus payments, the IRS created the “Where’s My Stimulus Payment?” application.  By directing taxpayers to this tool, the IRS hoped to provide good information and minimize phone calls to its toll free numbers.  However, the application did not reflect electronic payments until after the funds were actually deposited into the taxpayer’s account, limiting its usefulness and again leading to more calls. 

The situation in 2020 is a mixed bag.  On the one hand, TAS research has shown that 41 million US taxpayers do not have broadband access in their homes, and 14 million don’t have any internet.  The shelter-in-place and business/government closure requirements have significantly reduced taxpayers’ access to public spaces that provide wifi, so they may not be able to check the app and can only call the IRS.  And unlike 2008, when the IRS sent out about 130 million letters to taxpayers before issuing stimulus payments, the 2020 letters will go out after the actual issuance of the payments.  If the IRS posts a “Where’s My Stimulus Payment” app this time around, anxious taxpayers will be checking it and receiving no information.  This, in turn, will lead to more calls to the toll-free line.

Obviously, there is a lot we don’t know about the actual mechanics of how the IRS will administer the 2020 advance recovery rebate.  The 2020 design has significant improvements over 2008, notwithstanding some gaps.  The coronavirus that necessitated this legislation has also created the most challenging conditions in the history of the IRS, in terms of its employees being able to do their jobs, especially in the area of taxpayer service – providing assistance by answering calls and responding to correspondence.  And the advance recovery rebate is just one element of the recovery work the IRS is charged with delivering.  In future blogs, I’ll explore the downstream consequences of this additional work on the IRS and taxpayers.

Part I: What I Worry About When I Think About the IRS and the CARES Act

In today’s post Contributor Nina Olson offers the first of a two-part post on the CARES Act.

In his memoir of his time as Commissioner, Many Unhappy Returns, Charles Rossotti recounts the evening of July 3, 2001, on which he was advised there was a “bug in the program” resulting in some erroneous computations of the special refund checks that 90 million taxpayers were expecting.  “No one could tell what the delay might be until we could find the problem and fix it in the ancient computer codes of the IRS master file.”  He continues:

The problem showed, only too obviously, the frightening vulnerability caused by the IRS’s continued reliance on the forty-year-old master-file software.  We were working on replacing this software through our modernization program, but for now we were still depending on it.  The tax code provision directing the special refund – seemingly simple – actually contained subtleties that reduced the amount of the refund based on how much the taxpayer had paid and whether he or she had used certain tax credits.  Only four programmers understood the part of the master-file software that implemented these provisions, and only one was fully qualified to make the most sensitive changes. [Emphasis added.]

These words should send shivers down the spine of anyone contemplating the IRS’s role in delivering key components of the massive stimulus bill under consideration by Congress today.  To stimulate the economy, the IRS is poised, as it was in 2001 and again in 2008, to send out over 100 million payments  – in addition to those it is processing and issuing as part of the regular filing season.   In 2001, the IRS’s master file system – the official record of taxpayer accounts which GAO has labelled the oldest databases in the federal government – was, in Commissioner Rossotti’s words, “ancient.”  Despite Charles’ optimism, this software is still around today, only it is 19 years older – and now qualifies as being called “prehistoric.”

As the new National Taxpayer Advocate in 2001, I witnessed the IRS pull off the unbelievable feat of issuing these checks in record time.  I learned a great deal about what the IRS does well – rally its troops to accomplish a discrete if gigantic task with little resources.  In fact, the IRS’s skill at delivering checks is a curse to the agency, because it means Administrations of both parties and Congress keep turning to it to implement ever more programs and initiatives.  The agency is in a constant reactive mode of implementing new initiatives even as it falls further behind on delivering its core mission and on replacing its ancient/prehistoric systems.


This is not to say Congress should stop using the IRS to deliver programs, including economic stimulus.  By virtue of annual return filings, the IRS is uniquely positioned to reach 155 million individual taxpayer households and over 14 million businesses.  These programs, however, should be designed so the IRS can administer them relatively efficiently, and the IRS must be provided the necessary resources for implementation.  In this blog, I look at the CARES Act from the viewpoint of planning and implementation, and examine it in light of IRS and taxpayer experiences in 2001 and 2008.

Setting the stage:  the IRS current workload and the effect of prior Economic Stimulus Payments

In FY 2019, the IRS received 99.3 million calls on its “enterprise” telephone lines, of which only 28.6  million – or 29 percent – were answered by an assistor.  Considering only those calls coming in on the Accounts Management lines (those relating to account inquiries and tax law questions) 28 percent of the 76.8 M net call attempts actually got through to a live assistor.  (Note the IRS calculates its Level of Service (LOS) differently – among other things, it only counts the number of calls it routes to assistors in the denominator; under this calculation, the LOS for Accounts Management was 65 percent.  The Taxpayer Advocate Service believes this figure does not accurately reflect taxpayers’ experience or IRS call demand.  Few taxpayers choose to go to automated lines; in fact, it is the IRS system that forces them to automated lines in response to certain responses by the taxpayer.  I concur with TAS on this point, and will use their figures when available.) 

If past experience holds today, IRS phone service will plummet with the advent of calls arising from the 2020 Economic Stimulus Payment (ESP) program.  (All of these figures come from my June 19, 2008 testimony before the Ways and Means Subcommittees on Oversight and Social Security.)  With respect to the 2008 ESP, as of June 7, 2008, the IRS had received 27.7 million call attempts on its dedicated ESP toll-free line, of which 2.9 million spoke with a live assistor.  The IRS computed LOS on that line for the week of June 7, 2008 was 30.4 percent.  And those were good years for the IRS, when the 2007 LOS for its main phones lines was 80.6 percent.  It also received 316,000 ESP-related visits to its walk-in sites, which are now operated by appointment-only (meaning you have to make a phone call).  All such sites are closed due to the coronavirus. 

The environment for the 2020 Economic Stimulus payment is much more dismal than 2008, even disregarding the impact of the coronavirus.  IRS funding has declined by about 20 percent since FY 2010, adjusting for inflation.  Of its FY 2019 $11.3 billion appropriation, only $2.587 billion was appropriated for taxpayer service (including tax return processing) and $4.678 billion was appropriated for enforcement.  And abysmal $150 million was appropriated for Business Systems Modernization, the account from which Master File replacement is funded.

In March 2020, the IRS was probably already receiving an uptick in calls as a result of people wanting additional information and reassurances about the extension of the filing season.  Adding another 28 or 30 million calls relating to the ESP will just cause the LOS to crater, however one calculates it.  The same employees who answer the phones are also the ones who open and process taxpayer account correspondence.  If the IRS moves more people to handle the phones, it falls behind with the correspondence.  This is precisely what happened in 2008 – the inventory of accounts correspondence more than doubled from the previous year.  The 2008 workload surges don’t take into account the IRS’s coronavirus-related staffing adjustments.  As I understand it, most if not all campus offices have been shuttered, the practitioner priority service line is shut down, the IVES system that verifies taxpayer identity for purposes of releasing questionable refunds is not operative, and TAS is refraining from sending Operation Assistance Requests the operating divisions in order to resolve cases. 

Additional appropriations for ESP hiring or keeping seasonal employees on board longer won’t help the IRS manage the ESP workload if employees don’t have access to systems remotely.  Employees have to be at the mail sites to process mail, but, rightfully so, the staffing has been significantly reduced to ensure social distancing and allow for rigorous cleaning.  The call sites themselves are not set up for telework.  While telework pilots were underway, few call center employees have laptops and government phones that enable them to work from home.

The IRS is aware of taxpayer anxiety and is attempting to calm taxpayers down.  Its coronavirus web page has a plea for taxpayers not to call:

At this time, the IRS does not have any information available yet regarding stimulus or payment checks, which remain under consideration in Congress.  Please do not call the IRS about this.  When the IRS has more specific details available, we will make it available on this page.

But just in case anyone thinks we can head off all these calls with proper communications, the 2001 experience should serve as a guide.  The IRS sent out a letter to every taxpayer who was eligible to receive an additional payment, alerting them to that fact and advising them there was nothing they needed to do to receive the payment – it would come to them automatically over several weeks.  In response to this letter telling taxpayers they didn’t have to do anything, the IRS had its first 1 million call day in its history, in which taxpayers called to ask, was it really true they didn’t have to do anything to get the additional check?  Human nature is what it is.  You can’t make this up.

As with the 2008 legislation, the 2020 “recovery rebate” is structured as a “refundable” credit against 2020 tax liabilities that must be claimed on 2020 individual income tax returns.  To get these dollars into the economy quickly, however, the legislation instructs the Secretary of the Treasury to issue advanced refunds of that credit based on taxpayers’ 2019 or 2018 income, or in the absence of a 2019 or 2018 return, on the basis of Social Security or Railroad Retirement benefits reported on the relevant Form 1099  (For a more detailed discussion of the recovery rebate, see Carl Smith’s PT posts here and here.) 

Because taxpayers are motivated to receive their refunds, the IRS generally has two “bumps” of refund claims – at the start of the filing season, and in the last 3 weeks of the season.  With the EITC and ACTC refund issuance now delayed each year until February 15th at the earliest, the first refund “bump” has been pushed back, but many such returns have already been filed by now, and presumably taxpayers will continue to file refund returns regardless of the filing season extension. 

But for the lowest income and the elderly, how will these returns be prepared?  Free Tax Counseling for Elderly/Tax Aide/AARP sites have all been shut because of the coronavirus, and most VITA sites have closed down.  In 2008, the IRS kept TACs fully operational after April 15, and prepared tax returns for free for people with income of $40,000 or less.  Given the coronavirus protections, all TACs are closed.  At any rate, TACs abandoned return preparation several years ago, so that avenue of assistance is no longer available.  Will low income taxpayers eager for their additional refunds flock to unregulated return preparers, who will charge exorbitant fees and reduce the amount of cash in the hands of these taxpayers to stimulate the economy (other than stimulating the return preparation economy ….)? 

As if the constraints the IRS’s current operating environment were not challenging enough, the coronavirus’ impact exponentially complicates ESP implementation.  In Part II of this blog, I will explore some of the positive changes in the CARES Act, as well as gaps in the legislation and specific challenges relating to implementation.

Plea for Guidance on Emergency Sick Leave Credit

In this post, guest blogger Bob Rubin identifies guidance urgently needed under the Families First Coronavirus Response Act (FFCRA). Christine

This is a plea for guidance on a national issue for which the rubber hits the road on April 1.

Before I beg, I observe that likely it is only people who read this blog, and Service employees, who understand what a burden the FFCRA and the CARES Act place on the Service.  The entire federal tax deposit system needs to be redesigned, and at the same time the Service has to be ready to process FFCRA “accelerated payment requests” within two weeks, while short-staffed and working remotely.  How do “accelerated payment requests” fit within section 6511?  My hat is off to the Service for undertaking this task while under duress.  We all need to be patient with the Service.  We all need to do what we can to lessen the burdens of the Service, for example by dampening client expectations based upon press reports on the speed at which the Service can act. 

Despite my understanding of the need for patience, I beg for guidance on an issue of immediate importance. 


Governor Newsom issued an Order ordering “all individuals living in the State of California to stay home or at their place of residence, except as needed to maintain continuity of operation of the federal critical infrastructure sectors” on March 19, 2020.  Critical infrastructure includes, “Professional services, such as legal or accounting services, when necessary to assist in compliance with legally mandated activities and critical sector services.”

In response to the Order, we furloughed much of our staff and directed all attorneys to work at home.  If the Order qualifies as a “Federal, State, or local quarantine or isolation order related to COVID-19,” pursuant to section 5102(a)(1) of the Emergency Paid Sick Leave Act (part of FFCRA), then starting on April 1, we are mandated to pay our staff, who cannot work from home, 10 days of emergency sick at a maximum of $511 per day for 10 days, and pursuant to the Tax Credit for Paid Sick and Paid Family and Medical Leave Act, we will get a dollar-for-dollar FICA tax credit for the emergency sick leave wages we pay.  If the credit is in excess of the employer’s share of the tax due in a federal tax deposit, a “request for an accelerated payment” can be made immediately, and the Service “will process these requests in two weeks or less.”  IR-2020-57, March 20, 2020.  I hope my friends in the National Office did not have a severe medical emergency when they read the Information Release. 

There is no guidance on whether the Order is a “Federal, State, or local quarantine or isolation order related to COVID-19.”  The Order is probably very similar to the orders issued in New York, Washington and other states.  So, this is a national issue.

My non-tax partners, based upon the “plain meaning of the Order,” think I am crazy for thinking the Order does not qualify as a “Federal, State, or local quarantine or isolation order related to COVID-19.”  However, there has been no guidance from the Government, the words quarantine or isolation do not appear in the Order and, since lawyers are a part of the critical infrastructure, the Order provisions “to stay home or at their place of residence” do not apply to our employees. 

There are tons of policy reasons for the Government to take the position the Order is a “Federal, State, or local quarantine or isolation order related to COVID-19.”  There is a serious fiscal reason to take a contrary position.  What did Congress intend?  I do not blame the Service for the lack of guidance. The Service probably is awaiting a decision by Treasury.  Please, Treasury, provide guidance to the Service on whether Governor Newsom’s Order is a “Federal, State, or local quarantine or isolation order related to COVID-19.”  Time is critical since the first emergency sick leave wages are payable April 1.  I hope my friends in the National Office can help. 

So, How Will the “Recovery Rebate” Refunds Work This Time? Part II

This is the second of a two-part post on the portion of the CARES Act legislation that adopts, once again, “recovery rebate” credits and refunds.

In part I of this post, I discussed the principal provisions of section 6428 and the practical ways I expected the statute to be administered.  My administrative predictions are based on how the IRS administered two prior version of section 6428—in 2001 and 2008.

This post is to discuss two issues under the prior versions of section 6428 that led to litigation and how those issues have or have not been addressed by the current legislation.  The two issues are:

  1. Whether the IRS may apply the recovery rebate credits (including stimulus checks) under section 6402 to reduce certain outstanding debts; and
  2. Which taxable year is the stimulus check “for” for purposes of bankruptcy?

The answer to the first question is decidedly “no”, with one exception.

The answer to the second question is still open – at least outside the Second Circuit.


In plain English, taxpayers never “pay” refundable credits to the IRS.  So, Congress did something to modify plain English.  Section 6401(b)(1) provides that the excess of all refundable credits over the income tax imposed “shall be considered an overpayment”.

Section 6402(a) allows (but does not require) the IRS to offset any overpayment of one tax against any other federal tax debt.

Section 6402(c) instructs the IRS to send to states – to reimburse them for paying out overdue child support – “the amount of any overpayment to be refunded to the person making the overpayment” who was obligated to, but who did not pay, the child support. 

One of the early cases establishing that overpayments attributable to refundable credits can be sent to states under section 6402(c) involved an earned income tax credit (EITC) for a taxpayer who had a new family, but who had failed to pay the required child support to his old family.  He contested the IRS taking his EITC, arguing that he was not “the person making the overpayment” because he had never paid the EITC to the IRS in the first place.  In Sorenson v. Sec’y of Treasury, 475 U.S. 851 (1986), citing section 6401(b)(1), the Court held that the taxpayer had made an overpayment and so his EITC overpayment could be collected for child support under section 6402(c). Since Sorenson, it is uncontested that overpayments from refundable credits can be taken under section 6402.

Section 6402(d) requires the IRS to send overpayments to other federal agencies who inform the IRS that the taxpayer owes the other agency money.

Section 6402(e) requires the IRS to send overpayments to states who notify the IRS that a state resident owes state income taxes.

Section 6402(f) requires the IRS to send overpayments to states who notify the IRS that a person “owes a covered employment compensation debt” to that state.

Both the 2001 and 2008 versions of section 6428 said nothing about section 6402.  Accordingly, the IRS felt required to send stimulus checks to other federal agencies or the states under subsections (c), (d), (e), and (f) of section 6402 and decided that it would offset any such overpayment against federal taxes under the permissive language of section 6402(a).  This was sad with respect to most of my low-income Cardozo Tax Clinic clients, but I knew there was nothing I could do about it.

However, in 2007, two of the clinic’s clients entered into offers in compromise (OICs) with the IRS.  In each OIC, there was a provision stating that, as additional consideration, the client offered “any refund, including interest, due to me/us because of overpayment of any tax or other liability” up to and including for the year in which the offer was entered into (i.e., 2007).  For both clients, the IRS took their stimulus check, treating the checks as relating to the 2007 taxable year.  And for one taxpayer, the IRS also took the 2007 EITC and additional child tax credit. 

I arranged for the taxpayers to file refund claims and sue for refund on the ground that, while concededly, refundable credits are overpayments for purposes of the Code, the language of OICs is in plain English and overrides the Code.  I argued that in plain English, refundable credits are not “refunds . . . because of overpayment”.  I also argued that, as far as the stimulus check, it related to the 2008 tax year – per the language of section 6428(a) – so it was outside the scope of the additional consideration language.

In Sarmiento v. United States, 812 F. Supp. 2d 137 (E.D.N.Y. 2011), aff’d in part and rev’d in part, 678 F.3d 147 (2d Cir. 2012), and Maniolos v. United States, 741 F. Supp. 2d 555 (S.D.N.Y. 2010), aff’d per order, 469 Fed. Appx. 56(2d Cir. 2012)), I lost both arguments (though a judge in the E.D.N.Y. had agreed with me that the stimulus check related to 2008). 

The Second Circuit held that plain English was not contemplated by the wording of the OIC, but, instead, Code-speak was, and Code-speak (section 6401(b)(1)) made refundable credits “overpayments”. 

The Second Circuit also held that the stimulus check related to the 2007 year, primarily because the legislation was passed in February 2008, before 2007 tax returns were due.  I thought the date of passage of the act legally irrelevant, since the 2007 returns had no entry for section 6428 credits and 2007 returns could have been filed in January or February 2008, prior to the date of enactment.

Even though it won my cases, the IRS was concerned that another Circuit might not come to the same conclusion, so it altered the additional consideration language for future OICs.  Today, the OIC additional consideration sentence reads: “The IRS will keep any refund, including interest, that I might be due for tax periods extending through the calendar year in which the IRS accepts my offer.”  Note the omission of the words “because of overpayment”.

In any case, these were the first Article III courts that had ruled on the issue of the year to which the stimulus check relates – i.e., the year whose tax information generated the checks or the year to which section 6428(a) says the credit is attributable.

But, it turns out that the year to which the stimulus check relates is no longer important for collection of IRS taxes from the stimulus check:  New CARES Act section 2201(d) provides:

(d) EXCEPTION FROM REDUCTION OR OFFSET.—Any credit or refund allowed or made to any individual by reason of section 6428 of the Internal Revenue Code of 1986 (as added by this section ) . . . shall not be— . . . (2) subject to reduction or offset pursuant to subsection (d), (e), or (f) of section 6402 of the Internal Revenue Code of 1986, or (3) reduced or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.

As I read section 2201(d)(3), it prohibits collection of either the stimulus check or the credit under section 6428(a) for other federal taxes under section 6402(a) (though I don’t know why the statute makes no reference to section 6402(a)).  And all but the state child support offsets are also prohibited by the new statute.

I am delighted by this compromise.  It should be noted that when Senator McConnell first introduced his coronavirus legislation, the version of section 6428 appearing in that bill would have prohibited offset under sections 6402(d), (e), or (f), but would have allowed offsets for other federal taxes.  I complained of this publicly (in an article in Tax Notes Today Federal) and to a friend on the Joint Committee on Taxation staff.  I argued that now was not the time to be collecting old tax debts, but to be stimulating the economy.  The very people too poor to pay their back tax debts were no doubt also to be most in need of the checks to survive this crisis. Whether my advocacy had any effect, I have no idea.  I’d like to hope it did, even though this change probably cost the federal government several billion dollars that it would not otherwise have sent out.

The final issue that ended up in litigation regarding the 2001 and 2008 versions of section 6428 was whether, for purposes of bankruptcy, the advance check was “for” the taxable year on whose information it was calculated (2000 or 2007) or was “for” the taxable year of the stated credit (2001 or 2008).  There had been one ruling that the 2001 section 6428 check was for the taxable year 2001. In re Lambert, 283 B.R. 16 (9th Cir. BAP 2002).  But, bankruptcy courts split almost evenly over the taxable year as to which the 2008 stimulus check was for.  Compare In re Wooldridge, 393 B.R.  721 (Bankr. D. Idaho 2008) (check was for 2008); In re Schwenke, 102 A.F.T.R.2d 6355 (Bankr. D. Mont. Sept. 25, 2008) (same); with In re Alguire, 391 B.R. 252 (Bankr. W.D.N.Y. 2008) (check was for 2007); In re Smith, 393 B.R. 205, 208-209 (Bankr. S.D. Ind. 2008) (same).  I am no expert in bankruptcy, but I anticipate that there will be the same dispute concerning the new coronavirus stimulus check, and that the opinion of the Second Circuit in my cases, although influential, will not be the last word.

So, How Will the “Recovery Rebate” Refunds Work This Time? Part I

This is the first of a two-part post on the portion of the coronavirus legislation that adopts, once again, “recovery rebate” credits and refunds.

When Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16 – i.e., Bush 43’s first tax bill – it reduced taxes, in part, by creating a new 10% bracket.  Congress wanted to get into taxpayer hands some of the benefit of that rate reduction even before returns were due.  So, it came up with the idea of sending checks mid-year.  The methods of sending and computing those checks were laid out in a new Code section 6428.  That section was entitled “Acceleration of 10 Percent Income Tax Rate Bracket Benefit for 2001”.

Even before the economy cratered in late 2008, Congress saw what was coming, so, in February 2008, in the Economic Stimulus Act of 2008, Pub. L. 110-185, Congress revived and revised section 6428 – now to send “recovery rebate” checks in mid-2008. 

In section 2201 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress has again decided to send out checks through the IRS and has again revived and revised section 6428 to send recovery rebate checks in mid-2020. 

Why use the IRS to send out checks, rather than some other government entity?  Well, because Congress wants to base the amount of the checks, in part, on citizens’ income, and only the IRS would have that information handy.

Section 6428 operates as a refundable credit – just like the earned income tax credit or the additional child tax credit.  Section 6428(b).  (Hereinafter, all references to section 6428 are to the 2020 version, unless I tell you otherwise.)  Because it has been awhile since this recovery rebate credit has been in the law (and because I litigated on behalf of taxpayers the only district court and appellate court opinions addressing the 2008 version of section 6428; see Sarmiento v. United States, 812 F. Supp. 2d 137 (E.D.N.Y. 2011), aff’d in part and rev’d in part, 678 F.3d 147 (2d Cir. 2012), and Maniolos v. United States, 741 F. Supp. 2d 555 (S.D.N.Y. 2010), aff’d per order, 469 Fed. Appx. 56(2d Cir. 2012)), I thought it would be useful for me to give a practical primer on how the new recovery rebate is written, how it was administered last time, and how I think it will be administered this time – because I anticipate the IRS will make administrative choices in 2020 similar to those that the IRS made in 2008.


The current recovery rebate credit is nominally a credit against 2020 income taxes.  Section 6428(a).  This follows the pattern of the prior two versions of making the credit a credit against the income taxes of the tax year in which the “advanced refund” (i.e., “stimulus check”) is sent out.  That means that, on the 2020 income tax return that you prepare in April 2021, there will likely be a line entry under payments and refundable credits in which you calculate the section 6428 credit using your 2020 income.  You will then subtract from the credit due you on that return the amount of any stimulus check that you received in 2020.  If you are due more credit, you will get it as part of your 2020 refund.  If you have been overpaid through the stimulus check, however, you do not have to return the excess.  Section 6428(e)(1).

This brings me to a comment based on my experience dealing with low-income taxpayers while I headed the Cardozo Tax Clinic during 2008 and 2009:  Most taxpayers, at the time the 2020 return is prepared, will not be sure whether or not they received the stimulus check or the amount thereof.   Since you have to subtract the amount of the stimulus check from the calculation of the 2020 credit, how do you solve this problem?  As discussed below, the stimulus check, if precedent holds, is going to be posted to the taxpayer’s 2019 income tax transcript as (1) a credit and (2) then a refund check. So, order a copy of that transcript for 2019 before preparing the 2020 return. 

If you fail to subtract the amount of a stimulus check that was sent, several things happen:

The excess refundable credit that you claimed is treated as a deficiency in tax under section 6211(b)(4) and can be collected without a notice of deficiency under the math error authority of section 6213(b)(1) and (g).  This is partly stated at section 6428(e)(1) and the rest is stated in subsection (b) of CARES Act section 2201, the non-codified part of the statute that adopted the new section 6428. 

You can also expect a 20% section 6662 penalty to be imposed on that deficiency.

Who gets the credit?  Any individual who is not a nonresident alien or a person who can be claimed as someone else’s dependent.  Section 6428(d).  This is a much broader category of individuals entitled to the credit than in the prior two versions of section 6428.  For the prior versions, smaller credits were allowed if an individual had not paid income tax in the amount of the usual credit, but the individual had a certain amount of qualifying income (which included Social Security benefits).

How much is the credit?  It is $1,200 per person ($2,400 in the case of a joint return) plus $500 per dependent who is a qualifying child of the individual under section 24(c).  Section 6428(a).  That means that the rules of section 24(c) apply to limit the additional $500 to children up to age 17.  All other limits on who is a qualifying child under section 24(c) also apply.

What is the phaseout of the credit?  The phaseout of the credit begins at certain adjusted gross income (AGI) levels, depending on filing status.  The phaseout is 5% of the AGI that exceeds that level.  The level at which the phaseout begins is AGI of $150,000 for joint filers, $112,500 for head of household filers, and $75,000 for single or married filing separately filers.  Section 6428(c).

How is the stimulus check sent to me in mid-2020 calculated, since I don’t know my 2020 income yet, and, indeed, my income is likely to be much lower in 2020 than in prior years?  As with the earlier versions of section 6428, this problem is only partly solved by having the IRS calculate the stimulus check as the amount that would have been due you under subsection (a) if your 2019 tax information were used.  Section 6428(f).  As you can see, though, many more people are likely to face smaller stimulus checks than they will ultimately be due for a recovery rebate refund under this system.  For example, say a single filer earned $200,000 of AGI in 2019.  She would get no stimulus check because of the operation of the phaseout.  But, when she filed a 2020 return showing AGI of only $60,000, she would get $1,200 at that time, since she did not get a stimulus check and her AGI was not above the phaseout amount.

What if an individual never filed a 2019 return, so the IRS can’t know the individual’s 2019 AGI?  Well, first, the IRS can substitute 2018 for 2019 in calculating the stimulus check, and, second, “if the individual has not filed a tax return for such individual’s first taxable year beginning in 2018, [the IRS may] use information with respect to such individual for calendar year 2019 provided in (i) Form SSA-1099, Social Security Benefit Statement, or (ii) Form RRB-1099, Social Security Equivalent Benefit Statement.”  Section 6428(f)(5). 

I am not sure what happens if the individual did not file either a 2018 or 2019 return and was not receiving Social Security benefits in 2019.  For example, many taxpayers are working and are slightly overwithheld and so do not bother to file a tax return for the small refund they may be due.  Are these taxpayers going to get a stimulus check? My guess is that they are not.  They will have to wait until they file a 2020 return to get the benefit of the credit.  If they are perennial non-filers, so don’t file for 2020, either, they may never get the credit.  I think the drafters of section 6428 could have been more creative – such as allowing the IRS to total all gross income shown on 2018 or 2019 third-party information returns for purposes of calculating an AGI.

When will the stimulus checks be paid?  The statute does not set a specific date for payment, but it does require that no checks be sent out after December 31, 2020.  Section 6428(f)(3).  For the 2008 checks, the IRS ended up staggering the issuance of checks each week, so as not to overwhelm its computers or staff.  If I recall, the checks were issued over a three-month period, with the last two digits of one’s Social Security Number determining in which tranche any check would be sent.  I am not sure the IRS can do it any faster.  However, if the first checks only go out to some people late summer or early fall, I don’t know how poor people or people who have lost their jobs already will be able to get by in the interim.

There are also provisions in section 6428 and the noncodified accompanying legislation addressing members of the Armed Forces and the treatment of possessions.  I will not discuss those.  However, in my next post, I will discuss issues that arose in the courts in response to the prior versions of section 6428 and how the answers may or may not differ under the current version.

How Low Income Taxpayers deal with IRS controversies and what it means in the COVID-19 Era

Today we welcome first time guest blogger Gina Ahn. Gina practiced law as In House Counsel and Program Officer for a private operating foundation working internationally before transitioning to low-income tax controversy in 2019 as the managing attorney of the Koreatown Youth and Community Center LITC. In today’s post, she uses a current case to illuminate some of the unique challenges that many low-income taxpayers face in dealing with the IRS, and how the coronavirus shutdowns particularly impact those taxpayers. Christine

Have you ever taken a subway in a foreign country where you don’t speak the language? You plan; you know when you need to get off; you figure out exact change in advance – yet you still get stuck behind a whole group of people blocking your way off. Panic. You don’t know how to say “Please, let me through. I need to get off.” That feeling of helplessness and desperation is the norm for most of the clients I work with at the KYCC Low Income Taxpayer Clinic (“LITC”) in Los Angeles. Navigating the IRS Automated Underreporter (“AUR”) program, responding to the Integrity and Verification Operations (“IVO”) ID verification requests, and working through the Collections Process is difficult. The Taxpayer Advocate Service’s (“TAS”) Roadmap (Publication 5341, Rev. 9/2019) is a helpful guide to understand where one is in the giant IRS machinery. According to TAS’s map, our clinic’s clients are primarily in the Exam (Orange), Collection (Red), Appeal (Purple), and Litigation (Blue) stations.


Most LITC clients come to us after their deadlines have expired – whether it’s 30, 60, or 90 days after key dates. For these clients, to be perfectly frank, the COVID-19-related reductions in IRS service capacity may not impact them much, if there is no urgent need for action on their case. Someone with a shelved collection case who is seeking an OIC will have the same end result whether we can accomplish it now or 6 months later.

Ironically, it is the taxpayers who are ‘mid stream’ and the most engaged in the IRS controversy process that are the most stressed by COVID-19. As of 3/22/2020, 8 state governors have announced “stay in place” orders of some type. The stress and impact are most easily demonstrated by sharing a real case scenario in the context of a local shut down. KYCC’s LITC is located in the city of Los Angeles. The mayor of Los Angeles issued a stay at home executive order on March 19, 2020, Thursday evening that ordered all non-essential businesses to cease operations. We had 24 hours to implement this order. Since assisting people with IRS controversies is not considered an essential business; we scrambled to prepare for the shut-down.

Like any other service industry operation that works with the general public, we had to shut down. So what’s unique to a low income tax controversy shut down? From my perspective, I believe the loss of in-person face to face appointments impacts the lower income demographic disproportionately compared to a regular tax controversy law firm. The demographic we serve are the least well equipped to access technological “work arounds” and the most likely to respond to “user friction” by dropping out and disengaging from the process of resolving their tax controversy.

This is best demonstrated by example.

LITC Case: EIC, CTC, HoH Correspondence Audit Denied

The last Friday (3/20/2020) I was physically at the clinic, we received a letter from the Service’s AUR program denying the Earned Income Tax Credit (“EIC”), Child Tax Credit (“CTC”), and Head of Household (“HoH”) filing status for a taxpayer we are representing. Fortunately, since this client is a native English speaker, I did not need to translate it into a foreign language. Of course, as any subject matter expert has to do in any industry, I still need to act as a cultural broker from “IRS speak” into “what it means for you.”

Prior to COVID-19, this taxpayer already had an uncooperative landlord not willing to find their cash receipt book to supply the additional receipts need to prove that that the taxpayer supported her dependents in tax year 2018.  Now, because of stay in place orders, that same landlord is even less available. Proving support of my client’s dependents will be challenging.

Fortunately, seeking redetermination in Tax Court is still an option. But, this taxpayer is already exhausted and wary of engaging in the government system. “Why,” you ask? To be honest, I do not quite know the answer. I just know she is psychologically fragile. Even at our first meeting where we discussed a response to the audit (back in November 2019), I asked her to obtain receipts from the landlord, it took her about 6 weeks to respond with about six receipts. She was fairly email savvy, so I emailed a request for more receipts. I get no response for two weeks. So, I called her cell.

“I’m sorry, but it would be best to prove more than 6 months, you know, like a “majority” of support. Can you get the rest of the receipts for 2018?”

She sighed and replied, “Maybe I should just give up.”

“Why? I mean, they are your kids and you took care of them. You should get the credit.”

“Well Gina, I saw your email and asked my landlord for more receipts. But he’s unwilling to look up last year’s receipt book. He won’t respond to any of my requests. And I have to work and take care of my kids and there are so many other things I need to do besides this.”

I negotiate with her, “Okay. Instead of giving up, just let me fax everything else we have with the six receipts from him and see how they respond.”

Do you hear her exhaustion? This working single mom of two children is just plain exhausted by life. She works an hourly job, and fighting to obtain proof to show she’s raising her kids is like the proverbial last straw that broke the camel’s back.

In this context, my client receives an IRS response on March 20, 2020 – the day after the mayor of Los Angeles announces stay at home orders. The IRS response essentially tells her, “Nope, we don’t agree. You owe us $5500 + penalties + interest = $7000. You can ask us to reconsider. Or you can go to court. But don’t be late – you’ve got a hard deadline of June 1, 2020.”  Since she doesn’t have the benefit of my colloquial translation (yet), she will likely focus in on the only part of the letter not in legalese, “How to Pay Your Taxes” which includes the final dollar figure.

If she has lost her job; she’s already stressed about how to make ends meet. If she’s fortunate enough to have a job that permits telework; she now has to figure out how to work from home while the kids are at home. Unfortunately, school will likely stay closed until the summer (adding another obstacle to her proving her kids’ residence) and the uncooperative landlord is even less accessible.  And a request for medical records from the doctor’s offices (often used to prove residence) are not going to be top of mind during a pandemic crisis.

Fortunately, my client has 90 days (by June 1, 2020) to petition the Tax Court. Have you ever tried explaining to a client how Tax Court is not Judge Judy and it’s not like the TV show Suits either? Helping her comprehend the reality of what Tax Court involves, how testimony works, and why interacting with appeals officers, IRS counsel, and a judge won’t necessarily be a futile repeat of her prior experience with correspondence examiners is not a conversation that works very well over the phone. The already overwhelming EIC audit has psychologically “beaten” the taxpayer down and taking her case to another level requires an element of “hand holding” with a compassionate explanation.

So you may wonder, “What do ‘hand holding compassionate explanations’ have to do with the implications of COVID-19 on low income taxpayers? Is it any different from how the pandemic impacts middle income America?” This EITC audit is my long-winded anecdotal way to explain a one word answer:  time. This group of taxpayers requires more reminders, phone calls, and face to face in person time than any other demographic I’ve ever worked with. In the past, I’ve worked with developing country NGO grantees, churches, refugees, and private operating foundation directors. All of whom may not have been technologically sophisticated. The low income taxpayer comes with the most ‘defeatist’ perspective that requires time to overcome. Technology is not the panacea that solves all problems. Individuals need a motive and reason to engage with the system. No video conferencing software can give the handshake, acknowledgement, and personal explanation needed.

I’ve had clients who could have snail mailed, faxed, or emailed a single page of a missing tax return to me to respond to an audit, but instead they would ask me if they could bring it into our office. When I first started this job, I was flabbergasted by the request. I would answer, “Of course, but if I happen to be away from my desk or in the middle of an appointment, feel free to leave it with my assistant or in my mailbox.” Often, they would patiently sit there and wait until I finished my call, or sometimes, they’d even wait for me to come back from lunch (!!). Now, I am no longer surprised at the request. I’ve come to realize that for a certain segment of my clientele, the direct handshake, eye contact, and acknowledgment, “I’ve received this document. I have seen you. I will be responsible for your case” – offers a reassurance that is the closest they will ever come to a human being explaining and working with them through the behemoth of the IRS machinery.

I used to disdain this part of my job as horribly inefficient (the billable hour culture of law influence). But now, I see it with more grace. Working through the IRS controversy process can help taxpayers begin to have more faith in the system. In turn, those taxpayers begin to make good faith attempts to re-engage in the system. A system that has, until now (for efficiency’s sake), treated them as a widget in the awe-inspiring revenue machinery of the United States government.

The process of humanizing the machinery of the complex IRS system requires time. So, how does “time” translate into practical IRS procedures and practice? I am sure my LITC colleagues and the ABA Tax Section Pro Bono & Tax Clinics listserv will think of many more practical and substantive tax provisions that would be helpful. But, as a new tax practitioner, I tend to think “functionally” rather than technically – since I am not as familiar with the Code or IRM sections that would have to be considered. Below is a list of practical “functional” needs I can think of that would be practical for my clients.

  • extend timelines to pay estimated quarterly taxes and monthly installment agreement amounts
  • create a streamlined process to reduce existing installment agreement payments
  • extend VITA (Volunteer Income Tax Assistance) to 7/15/2020
  • extend timelines to respond to notices, including audits and identity verification
  • extend timelines to renew ITINs (or permit the use of ITINs that expired in ty 2019/2020)
  • expand Certifying Acceptance Agents (for ITINs) into VITA programs
  • create a streamlined process for change of address updates (or deputize currently closed VITA volunteers to input address changes with existing ID from prior year returns)
  • lessen documentation (permit verbal?) requirement to qualify for CNC
  • broaden the definition of “experiencing imminent hardship” for TAS

Note: after this post was drafted, the IRS announced its “People First Initiative” in IR-2020-59 dated March 25, 2020, which provides significant relief including some of the items above.