IRS Announces New PTIN User Fee in Proposed Regulations

Today we welcome guest blogger Clinical Professor Frank Colella who teaches at Pace University in the Lubin School of Business.  He has been closely following the litigation concerning the fees that the IRS can charge practitioners and recently published an article on the subject in the Houston Business & Tax Law Journal.  Today he provides background on the newly proposed PTIN regulation regarding user fees.  For further background, Les has written on PT in the past about this topic here, here, here and here. Keith

The IRS has announced, in Notice of Proposed Rulemaking REG-117138-17, the imposition of a new PTIN (practitioner tax identification number) user fee. The proposed regulations require tax practitioners to pay $21 (plus a vendor fee) to obtain, or renew, their PTIN.  This is a marked reduction from the previous (pre-suspension) $33 fee, which itself had been a significant reduction from the original PTIN fee of $50 (plus the vendor fee).  After the district court in Steele held the IRS lacked the authority to impose the fee, they briefly suspended the issuance of PTINs altogether. However, the Service quickly resumed issuance of the PTIN – without charging the corresponding user fee. Last year, in Montrois, the D.C. Circuit reversed Steele and held the IRS could properly impose a PTIN user fee.  Unresolved, however, was the question of how much could be charged for the PTIN.  That issue was remanded to the district court for determination.

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While the newly announced PTIN fee does not come as a surprise in the wake of the news last month that the Office of Management and Budget had completed its review of the proposed regulations (fee), the timing of the decision is nevertheless a surprise.  Despite the IRS victory in Montrois, the case was, nevertheless, still before the district court on remand.  The Court had to determine what the appropriate PTIN fee should be in light of the various factors discussed by the Panel.  Moreover, in late October 2019, shortly after the Supreme Court denied the taxpayers’ Petition for Certiorari, the parties entered into a stipulation that provided for a detailed discovery schedule – that extends well into 2020.

The proposed discovery schedule, before the outbreak of the COVID-19 crisis, anticipated that the discovery phase of the remand litigation would extend through the summer of 2020 (and perhaps longer).  Among some of the items cited in the stipulation were the voluminous number of documents to be examined and the reluctance of some people (together with the outright opposition of others) to be deposed.  Whether judicial approval of the revised PTIN fee is desirable or, more importantly, whether such approval is a prerequisite to the imposition of the new fee, is an open question.  Given the newly promulgated proposed regulations, the answer to that question seems moot.

The proposed regulations do, however, explain how the new fee was arrived at by the Service.  While a background in cost accounting would be helpful, the explanation that accompanies the proposed regulations describes the direct costs that were used in the computation, together with an overhead component that was also included as part of the fee.  The computational methodology followed the guidance of SFFAS #4: Managerial Cost Accounting Standards and Concepts.  The Service estimated that there would be approximately 800,000 PTIN users (2,400,000 applications/renewals over a three-year period) to arrive at the $21 per tax return preparer fee.  Whether these figures would correspond to the numbers that would have been reached at the completion of the discovery phase of the remand litigation is unknown.

On remand, the district court was responsible for determining whether the fee was reasonable.  The determination would include not only the reasonableness of the fee based upon the direct costs associated with the PTIN program, but would also examine whether the direct costs used to calculate to PTIN fee included amounts for services and charges that went beyond the IRS’s authority to regulate the tax preparation industry.  It was not enough to identify the overall costs of the PTIN program; the court had to also determine the whether the individual cost components were properly within the IRS’s authority.

Apart from the IRS’s sua sponte decision to reduce the PTIN fee in 2015, the only courts that directly ruled on the reasonableness of the PTIN fee was the district court in Buckley (the subsequent appeal in the 11th Circuit was voluntarily dismissed with prejudice by the appellants).Despite the district court’s decision in Loving, the Buckley court nevertheless concluded that the original $50 PTIN user fee was reasonable.  In reaching that conclusion, Buckley did not provide any analysis, nor did it consider any of the components that should be included (or excluded) in the determination of the fee.  Other courts did not consider the fee itself, only whether the IRS was authorized to impose one.

Steele did, however, discuss what costs the PTIN fee should include and, more importantly, exclude from consideration.  Specifically, Steele I held, that under the Independent Offices Appropriations Act, the IRS may only consider the fees it incurs in providing the PTIN service: “the prevailing (and binding) interpretation of section 9701, which states, again, ‘the measure of fees [imposed under section 9701] is the cost of the government of providing the service, not the intrinsic value of the service to the recipients.’” (citing Seafarers Int’l Union of N. Am. v. U.S. Coast Guard, 81 F.3d 179, 185 (D.C. Cir. 1996)).

The IRS may not consider the benefit derived by individual class members from the use of the PTINs – it must be a uniform fee for all tax return preparers.  That holding served as the legal basis for the Steele litigation to proceed as a class action and, likewise, ordering relief on a class-wide basis.  “[T]he IRS has stated time and again that the cost of issuing a PTIN is the same regardless of whether the pin number is issued to an attorney, CPA, or uncertified tax return preparer.  As plaintiffs note, that is why the IRS decided in the first place to impose a uniform fee for every PTIN it issued — regardless of the recipient’s professional status.”

As noted above, the IRS cannot include costs, via the PTIN fee, that not are properly associated with the PTIN program. The plaintiffs alleged that, even following the IRS’s voluntary reduction of the fee in 2015, the amount charged nevertheless included impermissible components. “The IRS has also continued to use the fees to fund activities related to tax compliance, background checks, the voluntary certification program established after Loving, and many other things unrelated to issuing a number.”  The Panel agreed that any costs associated with activities found invalid pursuant to Loving should be reviewed on remand.

Interestingly, however, after Loving was decided but prior to the Montrois opinion, the D.C. Circuit decided AICPA, which held that the IRS could implement a voluntary program to regulate tax return preparers.  While Montrois did not discuss the impact of the AICPA decision, the costs associated with the voluntary program, which by necessity also utilizes the PTINs, should arguably be included in the direct costs of the PTIN program.  The costs associated with the voluntary program will undoubtedly benefit tax return preparers as a whole (if only by increasing the pool of better prepared preparers).

Finally, an additional question that should be examined on remand is the vendor fee itself, paid directly to third party administrators, which is imposed directly on the tax return preparers.  Thus, the original fee was not $50 but rather $64.25 when the processing charge was included.  The prior fee was not $33.00, but rather $50, with the addition of the vendor fee (increased from $14.25 to $17 per application/renewal).  And, the newly announce $21 fee is, in actuality, a $35.95 PTIN user fee because of the additional $14.95 vendor fee that must be paid to obtain (or renew) it. As succinctly, and somewhat rhetorically, stated by plaintiffs in their motion for summary judgement: “And if Accenture [the third party vendor] does everything necessary to issue a PTIN, then what benefit is the government providing to tax-return preparers?”

CARES Act Triggers IRS to Allow Amended Returns For Partnerships Subject to BBA

The ripple effect of COVID-19 extends to many areas in tax procedure and tax administration. In this post, guest contributor Marilyn Ames discusses a recent IRS revenue procedure that allows partnerships subject to BBA more immediate access to the relief provided by the CARES Act by allowing them to amend Form 1065 and Schedules K-1. Marilyn was an attorney with the Internal Revenue Service Office of Chief Counsel for over 30 years and is a contributing author on Saltzman and Book, IRS Practice and Procedure. Along with Greg Armstrong and Rochelle Hodes, Marilyn wrote the inaugural chapter in the treatise on the BBA centralized partnership audit procedures. Les

In its herculean efforts to implement the economic relief provided by Congress in the CARES Act, the Internal Revenue Service has looked beyond the provisions of Section 7508A of the Internal Revenue Code to other provisions, including those involving partnerships.  Under the provisions of the Bipartisan Budget Act (BBA), partnerships became subject to a centralized audit procedure, with limited exceptions.  In order to amend a partnership return, Section 6227 of the Code requires the partnership to file an administrative adjustment request (AAR). Under Section 6031(b), a BBA partnership cannot amend the Schedules K-1 after the original partnership return has been filed except to account for audit adjustments in certain circumstances. Generally, the adjustments contained in an AAR for an earlier year are accounted for in the partnership tax return in the year during which the AAR is submitted and any adjustments that do not result in an imputed underpayment (in other words, those that create a possible reduction in tax liability for the partners) are pushed out to the partners for use on the partners’ returns for the year in which the AAR was submitted. Without any adjustments to the BBA partnership audit provisions, if a partnership files an AAR in 2020 for tax years ending in 2018 or 2019 in order to take advantage of the liberalized CARES net operating loss provisions, the partners could possibly have to wait until 2021 when they file their 2020 tax returns to see any effect. 

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However, Section 6031(b) does allow the Secretary to provide for an exception to the general rule prohibiting the issuance of amended Schedules K-1. The Service has utilized this authority and published Revenue Procedure 2020-23 to give this permission, allowing partnerships more immediate access to the relief provided by the CARES Act by filing an amended Form 1065 and amended Schedules K-1.  This is not required – partnerships may still opt to file an AAR to claim the relief provided by CARES should they choose to do so.  Additionally, eligible partnerships are not limited to amending the partnership return based solely on changes in the tax law contained in CARES.  As noted in Section 3.02 of the revenue procedure, a partnership may amend a return to take into account “any other tax attributes to which the partnership is entitled by law.”

The most important point to note about Rev. Proc. 2020-23 is that it has a VERY short time period in which to act.  The option to file an amended partnership return and issue the corresponding Schedules K-1 expires on September 30, 2020.  

So what partnerships are eligible to file an amended Form 1065 and issue amended Schedules K-1? Rev. Proc. 2020-23 provides that any partnership that filed a Form 1065 and furnished all required Schedules K-1 for the tax years beginning in 2018 or 2019 prior to the issuance of the revenue procedure may amend. The Service will treat the amended documents as replacements for any prior returns, including any AARs previously filed for these years.  If the partnership filed an AAR for the same year as the year of the amended return, the amended return should conform the amended return to the AAR for any partnership items adjusted in the AAR. Section 3.04 provides for coordination with Notice 2019-46 if a partnership applied the proposed GILTI regulations to the return in question. If the partnership return is already being audited, the partnership is not precluded from filing an amended return, but must send notice to the revenue agent in writing prior to or contemporaneously with the filing of the amended return, and provide the revenue agent with a copy when the amended return is filed.

To amend the prior return, the partnership should use a Form 1065 and check the “Amended Return” box.  All corresponding amended Schedules K-1 should be included.  The preparer of the return should write “FILED PURSUANT TO REV PROC 2020-23” at the top of the return, and should attach a statement with each Schedule K-1 sent to the partners with the same notation.  

The partnership may file the documents electronically or using snail mail.  As we all know, electronic filing is probably going to result in the Service processing the amended return faster.  

Filing an amended partnership under Rev. Proc. 2020-23 will not change the application of the BBA audit procedures, as the revenue procedure is quick to point out.  If the partnership was subject to the BBA procedures before filing the amended return, it will remain subject to the BBA audit procedures.

Presumably, once the amended return is filed and the amended Schedules K-1 have been issued, partners can act to utilize any net operating loss carrybacks pursuant to the provisions of the newly-enacted Section 172(b)(1)(D) under the guidance given in Rev. Proc. 2020-24, thus getting refunds into the hands of the partners in a timelier manner.

Making an Entity Election When the IRS is Closed

Today we welcome guest blogger Kelley Miller.  Kelley is a partner with Reed Smith in Washington, D.C.  I know her through her amazing leadership in assisting exonerees with tax problems and with filing refund claims after the passage of IRC 139F.  We have previously posted about her work here and here.  In January the ABA Tax Section honored Kelley with the Janet Spragens Pro Bono award for her work in this area.  Although I know her for her pro bono work and her leadership in the ABA Tax Section, she has a day job handling tax controversy and business tax matters.  While we have focused quite a bit on the impact of the IRS shut down and the general economic slow-down on individuals, it has also had a significant impact on business.  Kelley writes today about one aspect of the impact on business as businesses seek to follow the procedures for entity election.  Keith

An entity uses a Form 8832 to elect how it will be classified for federal tax purposes: as a corporation, a partnership, or an entity disregarded as separate from its owner. An eligible entity is classified for federal tax purposes under the default rules described below unless it files Form 8832.

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WHEN MUST THE FORM 8832 BE FILED? 

Generally, an election specifying an eligible entity’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. 

An eligible entity may be eligible for late election relief in certain circumstances. 

WHERE AND IN WHAT MANNER MUST THE FORM 8832 BE FILED? 

A Form 8832 is paper-filed with the Internal Revenue Service Center based on the state or jurisdiction where the entity’s principal business, office, or agency is located. 

In addition to timely paper filing, the entity must attach a copy of Form 8832 to its federal tax or information return for the tax year of the election. If the entity is not required to file a return for that year, a copy of its Form 8832 must be attached to the federal tax returns of all direct or indirect owners of the entity for the tax year of the owner that includes the date on which the election took effect. An indirect owner of the electing entity does not have to attach a copy of the Form 8832 to its tax return if an entity in which it has an interest is already filing a copy of the Form 8832 with its return. Failure to attach a copy of Form 8832 will not invalidate an otherwise valid election, but penalties may be assessed against persons who are required to, but do not, attach Form 8832.

FORM 8832 – COVID-19 RELATED QUESTIONS 

HAS THE IRS RELEASED ANY GUIDANCE RELATED TO THE TIMELY FILING OF FORM 8832?

Yes.  Notice 2020-23 (“Notice”), which was released on April 9, 2020, provides that, pursuant to Section 7508A of the Internal Revenue Code, the Secretary of the Treasury may postpone the time for performing certain acts under the internal revenue laws for a taxpayer determined by the Secretary to be affected by a Federally declared disaster as defined in section 165(i)(5) (A). Further, under Section 7508A(a), a period of up to one year may be disregarded in determining whether the performance of certain acts is timely under the internal revenue laws.

The relief provided under section 7508A in Notice 2020-23, as well as related Notices that predated this Notice (specifically, Notice 2020-18 and Notice 2020-20) is limited to the relief explicitly provided for and does not apply with respect to any other type of Federal tax, any other type of Federal tax return, or any other time-sensitive act.

The specific relief provided under Notice 2020-23 is that any person (which includes partnerships, companies and corporations under Section 7701(a)(1)) with a Federal tax return or other form filing obligation specified in section III.A of the Notice (Specified Form), which is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, is affected by the COVID-19 emergency for purposes of the relief described in section III of the Notice (Affected Taxpayer).

Note, however, that Notice 2020-23 does not include Form 8832 in the section III.A list of Specified Forms.  Therefore, the COVID-19 guidance related to timely filing of Form 8832 falls under that applicable to Affected Taxpayers.  

DOES “AFFECTED TAXPAYER” INCLUDE AN ENTITY WITH A FORM 8832 FILING REQUIREMENT? 

Yes, if the Form 8832 would be timely if filed on or after April 1, 2020 and before July 15, 2020. 

Specifically, Notice 2020-23 provides that any person performing a time-sensitive action listed in Rev. Proc. 2018-58, 2018-50 IRB 990 (December 10, 2018), which is due to be performed on or after April 1, 2020, and before July 15, 2020 (Specified Time-Sensitive Action), is an Affected Taxpayer.

Rev. Proc. 2018-58 lists 35 acts under certain statutes related to business and individual tax issues that may be postponed pursuant to Section 7508A when there has been a federally declared disaster.  Act No. 33 of this listing of 35 acts is an election under Treas. Reg. Sec. 301.7701- 3(c), which provides for the time and place for filing of a classification election for federal tax purposes.  

CAN A FORM 8832 BE SIGNED BY PDF SIGNATURE?

No, not at this time.  There is no guidance in either the Treasury Regulations, the IRM or in the

Instructions to Form 8832 (see, Page 6) as to the requirement for original signatures on Form 8832, however, last year the IRS began sending letters to filers requesting original signatures on Form 8832 in order to process the filed Forms.  

In Internal Memorandum NHQ-01-0320-0001 (“Memorandum”) (March 27, 2020), the IRS

Deputy Commissioner for Services and Enforcement announced that pursuant to IRM 1.11.2.2.4, the IRS would accept images of signatures and digital signatures on certain documents related to the determination or collection of tax liability.  Form 8832 was not included among the documents specifically referenced in the Memorandum.  Further, although this Memorandum did provide that “any other statement or form needing the signature of a taxpayer or representative traditionally collected by IRS personnel outside of standard filing procedures” could be signed electronically, this likely does not apply to Form 8832 since the Form is not traditionally collected by IRS personnel outside of the standard filing procedure.  

CAN A FORM 8832 BE FAX-FILED DUE TO COVID-19? 

No, not at this time.  In addition to providing guidance for images of signatures and digital signatures, Internal Memorandum NHQ-01-0320-0001 allows for documents specifically referenced in the Memorandum to be provided electronically to the IRS via email.  Form 8832, however, requires original signatures and is not included in those documents referred to in the Memorandum.  At this time, the IRS has only announced that specific tax forms (Form 1139, Corporation Application for Tentative Refund and Form 1045, Application for Tentative Refund) may be temporarily fax-filed.  

WHAT SHOULD BE DONE IF CLIENT WANTS TO FILE A FORM 8832 BUT CANNOT GET AN EIN? 

As of April 15, 2020, EIN applications are not being processed by mail, telephone or fax.  The IRS locations that receive and process mail applications are closed at this time, and the IRS has turned off the fax lines that receive SS-4 forms.  Mail may be received in the Cincinnati Service Center, but we also have received returned mail sent to that Service Center late last month.  If mail is received (and not returned) there may be significant delay in processing the same.  The only available option to receive an EIN is limited to those entities with a principal place of business, or principal office or agency in any U.S. state.  These applicants may use the IRS online EIN application system.  Due to overwhelming demand, this system has been offline sporadically over the past week.  

Notice 2020-23 and the guidance related to the same provides entities an extension of time to file Form 8832.  Therefore, absent other compelling reasons, clients should take advantage of the additional time afford under the Notice.  

If a client is concerned about relying on the guidance in Notice 2020-23, an overly conservative approach might be to file a protective Form 8832 that omits the EIN.  Note that Forms 8832 for foreign entities are paper filed to the Service Center in Ogden, which is the only Service Center staffed at this time (50% capacity and not processing mail, according to several ROs that I have spoken with).  Accordingly, there is a fair chance that such a Form could be received and processed, however, even if the Form is received and processed, it will certainly be rejected for failure to include an EIN.  At the least, the entity could point to something being filed as reasonable cause basis under Rev. Proc. 2009-41.  Again, taking this action should not be necessary under the guidance of Notice 2020-23.  

WHEN IS THE IRS GOING TO RESUME ASSIGNING EINS BY PHONE AND FAX? 

The IRS Deputy Commissioner for Services and Enforcement as well as the National Taxpayer Advocate are well aware of the issue.  

In order to cure the temporary shutdown of the mail and fax processing systems, as well as the telephone operators, the IRS will either need to bring employees back to work in the Service Center or it will have to arrange for EIN applications or calls to be handled by employees who are eligible for telework.  Unfortunately, the only IRS employees who are eligible for telework are not those who currently receive and process the EIN applications.  While this may change in the near future, for now, the IRS is relying on the extension of time provided for in Notice

2020-23.  

IS THERE ANYTHING ELSE THAT I CAN DO TO ASSIST A FOREIGN ENTITY OBTAIN AN EIN? 

Telephone calls from foreign entities requesting an EIN are only worked by Cincinnati and

Ogden International Units and, as stated above, those individuals are currently not teleworking (and the Ogden Service Center is working at partial capacity).  

There could be an effort made to bring some of these persons back online through telework or in-person staffing as time goes on.  Therefore, the best advice at this time is to stay aware of news and updates from the IRS and also, to periodically attempt calling or submitting the SS-4 via fax.  

As a reminder, the relevant phone and fax numbers for a foreign entity to request an EIN are: 

  • EIN International phone number (267) 941-1099 (not a toll-free number) 
  • Hours of operation 6:00 a.m. to 11:00 p.m. Eastern time Monday through Friday
  • EIN International fax number (855) 215-1627 if faxing from within the U.S. and
  • EIN International fax number (304) 707-9471 if faxing from outside the U.S.
[As an aside, I had trouble weeks ago filing a Form 2848 to the International CAF Unit in Philadelphia, which is also closed.  On a lark, I faxed to the CAF unit in Ogden and my submission was accepted.  This is slightly different as the recording of the declaration of representative is more time-sensitive in an active matter, but if all else fails, and you want to take the most aggressive course of action, you might want to try faxing an SS-4 to the domestic fax number, provided that it is turned back on at some point, which is: Fax: (855) 641-6935.]

This Tax Season May Create Many Superseding Returns

Today we welcome back guest blogger, Nancy Rossner.  Nancy is an attorney with the Community Tax Law project in Richmond, Virginia and a graduate of University of Richmond Law School, my hometown and my alma mater.  She writes to remind everyone of the power of superseding returns and their special importance this year.  Nancy focuses her discussion on spousal abuse situations.  Because of the exclusion from receiving the Cares Act rebate payment in situations in which one of the spouses or dependents on the return lacks a social security number, that is another situation in which superseding returns might be considered.  For additional information see fellow blogger Bryan Camp’s discussion of the one return rule. Keith

The first time I learned of a superseding tax return, I was on the losing side of an income tax controversy case.  My client was on the outs with his wife, but they agreed to file jointly despite no longer living together. He had moved out of the house before the end of the year in question, while his wife remained in the house with their children. They agreed it would be more beneficial to file jointly, as they would be eligible for more credits and benefits related to claiming the children. They were then supposed to share the refund. As it turns out, they filed jointly, but the wife was not happy with the way the refund was ultimately split. She then filed her own separate tax return for the year in question, claiming the children. My client’s tax return was then examined by the IRS, and he contacted our clinic for help. As a then novice tax attorney, I did not realize the significance of the wife filing her own separate tax return prior to the April 15th deadline. However, I quickly learned!

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Superseding returns as defined by the IRM in 21.6.7.4.10 (07-22-2019) are certainly not a new concept. In fact, Keith Fogg wrote about them in a blog post on Procedurally Taxing dating back to 2017. Now is a good time to go back and read that post, as it provides an excellent explanation of what a superseding return actually is and the legal basis for superseding returns. In light of the current coronavirus pandemic, the ability to file a superseding tax return has become increasingly important for taxpayers, especially vulnerable taxpayers like victims of domestic violence. This importance is due to Treasury’s current procedures for issuance of the Economic Impact Payments (“EIPs”), also referred to as the “stimulus payment.” Under the CARES Act, for taxpayers who filed a tax return for 2018 or 2019, the stimulus will generally be issued using the direct deposit information from the most recently filed tax return after January 1, 2018. This includes situations involving married taxpayers who filed jointly in 2019 but are no longer together. The EIP is to be deposited into the bank account listed on the tax return. However, if no account is listed on the tax return and the banking information was not later submitted through the IRS online portal under “Filers: Get Your Payment”, the EIP is supposed to be mailed to the “last known address” the IRS has on file for the taxpayer. This address is usually the address used on the most recently filed tax return. That is unless the taxpayer submitted a Form 8822, Change of Address in time for the IRS to process it before ceasing many operations due to COVID-19, updated their address with the U.S. Postal Service in time for it to be processed before the payment is issued, or the taxpayer updated it via telephone with an IRS representative through oral testimony as permitted by I.R.M. 3.13.5.29 (09-16-2019) prior to IRS ceasing live telephone assistance.

Now, consider a taxpayer who fled an abusive marriage and did not agree to file jointly for 2019 but a joint return was filed anyway or a taxpayer who agreed to file jointly under duress. Yes, there are remedies in the tax code to relieve taxpayers of joint and several liability, such as claims for innocent spouse relief under I.R.C. 6015 in some situations or contesting the validity of the tax return in others. But what of the EIP? In most cases, the EIP of at least $2,400 (for jointly filing taxpayers meeting eligibility for the full amount of the EIP) would be deposited into the bank account listed on the tax return, which is more than likely the account of the abuser. The chances are pretty low that the taxpayer could get her portion of the EIP back from her spouse, if she has fled from the abusive situation. What are the chances the IRS would reissue the taxpayer’s portion of the EIP after disbursing the full amount of the EIP based on the joint tax return? Probably low as well, at least not without a lot of persuasion by the fleeing spouse. Here is where the superseding tax return becomes important.

It would be prudent for a taxpayer in the situation just described to file her own separate and superseding 2019 tax return, whether or not she had income in 2019.  This would serve to reserve her claim to her EIP. She would need to do so by the deadline for filing 2019 individual income tax returns, which was extended to July 15, 2020 via IR 2020-58. Importantly, in the case of a refund or credit being issued with respect to a joint return as per Section 6428(e)(2) of the CARES Act, half of the refund or credit is treated as having been made or allowed to each individual filing the joint return. This is purported to mean that $1,200 would belong to one spouse, and $1,200 would belong to the other spouse. By filing a timely superseding tax return, the taxpayer would essentially reserve her claim to her $1,200 EIP with the IRS. Then, if the IRS incorrectly issues the taxpayer’s EIP to her abusive spouse despite submission of a timely superseding tax return, the taxpayer would still be due her EIP. 

In a situation in which the taxpayer’s SSN was already used on an electronically filed joint tax return, she will likely need to file her superseding tax return by paper (advisably via certified mail to prove timely filing, and with “SUPERSEDING RETURN” clearly written across the top). Unfortunately, at the time of this post, the IRS is not currently processing paper tax returns, but the hope is that the IRS will eventually get back up and running, and begin to process paper tax returns, backdating the tax returns to the date of filing, i.e. the postmark date as per I.R.C. Section 7502.  This makes documentation of mailing extremely important in these situations. 

A late EIP may be better than no EIP, but for victims of domestic violence, this remedy is not good enough. Advocates for this group are already receiving calls that EIPs are being deposited into accounts to which the victims do not have access and there appears to be no immediate remedy. I am hopeful that during these times superseding tax returns can be used as an important tool to protect taxpayers, especially vulnerable taxpayers like victims of domestic violence, though the relief itself will take some time to be received.

Stimulus payments for the most financially vulnerable

Nina Olson wrote in prior post about the fact that the current IRS guidance requires recipients of SSI and VA disability payments who otherwise have no requirement to file tax returns to file some information with the IRS to allow it to know about them and where to send a payment.  The IRS has now created a portal for individuals who otherwise do not need to file a return to go online and fill in a relatively simple form. 

Those of us practicing in low income tax clinics have been fielding many questions from organizations that typically sent clients to our clinics.  They have clients who do not otherwise need to file returns but who need assistance filling out even the simplified return.  There remains hope that the IRS might do for SSI and VA recipients what it has done for regular Social Security recipients so that these individuals would not need to file anything in order to receive the stimulus payments.  Their names and payment information already exist in the records of other federal agencies who could make that information available to the IRS in the same way the IRS is going to receive the information regarding regular social security payments.

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With the publication of the portal last week these individuals can choose to go to the portal and fill in the requested information, if they are able to do so, or to continue waiting hoping that the IRS will make an announcement making it clear that it will pull the information from other federal agencies or that it will not.

In an email exchange with Bob Kamman last week, he reminded me of the significant prison population in the United States – approximately two million people.  These individuals appear to qualify for the CARES rebate.  Many in this population will not have filed returns in 2018 or 2019.  They may also have difficulty accessing the portal or interfacing with it.  Many in this population will be unbanked.

There will be many reasons that low income individuals will have difficulty obtaining the CARES rebate.  To the extent possible the IRS should try to make the process as easy as possible.  The creation of the portal is a good step.  Now we have to find ways to assist the most vulnerable to succeed in using the portal or other processes to obtain access to the rebate. 

Below is an article written by Annie Harper who is a cultural anthropologist at the Yale School of Medicine Department of Psychiatry, where she studies the financial difficulties faced by people with mental health problems.  We are including her article in this post with her permission.  She highlights the difficulties facing some in obtaining the CARES rebate.  Keith

‘I haven’t filed taxes for years’, Sharon said, ‘I wouldn’t even know where to start!’. An energetic woman in her early 40s, active in the food insecurity advocacy community in our town, Sharon called me earlier this week to find out if and how she can access the stimulus payment that she has heard about on the news. I had explained to her that payments will be going to people who have filed taxes or are receiving Social Security income such as Social Security Disability Income (SSDI) – but she explained that she does not fall into either category. She has struggled with mental illness for most of her life, and her only regular income is from Supplemental Security Income (SSI), a payment for people who are disabled but have not worked long enough in life to qualify for SSDI (SSI also supplements benefits for retired or blind people who have little or no income).

Sharon receives food stamps so her basic food needs are met, but she struggles to pay her rent. She applied for a section-8 housing subsidy some time ago, after her mother moved into elderly housing and Sharon was no longer able to live with her, but the waiting list is long. Sharon pays $600 a month to live in a room in shared apartment; after paying rent and her share of utilities, there is less than $150 left to pay for basics such as toiletries, cleaning supplies, bus pass and clothing, let alone anything extra. She has been supplementing her income with stipends from research participation – research studies are fairly easy to come by in this university town – but the studies are drying up now that due to COVID-19 no in-person research is allowed. Her brother used to help her out, but he has lost his job and can’t even meet his own family’s needs.

There have been times over the years when Sharon made more than usual from a research study or was given money as a gift that she could have put aside as savings, but strict SSI asset limits – which discontinue benefits if a person has more than $2,000 in assets – discouraged her. She was also afraid of losing Medicaid, which has even more stringent asset limits here in Connecticut. Sharon now has no extra money at all coming in, and no savings to draw on, and she is anxious to get the stimulus check to tide her over and to hopefully put something aside for the months ahead.

Initial indications were that people like Sharon, receiving SSI, would automatically receive a stimulus payment, but recently it transpired that SSI recipients would have to file taxes to be able to qualify. When I explained this to Sharon, she was utterly confused. She worked sporadically earlier in her life, but only earned enough to file taxes once or twice and cannot recall how to do it. Normally, I would advise Sharon that she go to a VITA site, where she can get free help with filing her taxes, but the sites are all closed. Luckily, they are operating virtually, but Sharon is worried about whether she’ll be able to understand what she needs to do without someone to guide her through it, in person. She also has limited minutes on her free Lifeline cellphone.

Millions of Americans every year, like Sharon, do not file taxes. Some do not file because they have no income at all or, like Sharon, they receive SSI and are not required to file. People who work but don’t earn much can qualify for the Earned Income Tax Credit (EITC) if they file taxes, but some still don’t bother to file because they earn so little that they don’t think it’s worth it (the less you earn, the less you get in EITC). There are also many people who don’t know that they may be eligible for the EITC. Some may have heard of the EITC but don’t know that they can qualify even if they are paid in cash and haven’t received a tax form from whoever paid them. Others don’t file because it can be incredibly confusing to work out how to do it, especially for those with occasional cash or other non-salary income. Some people don’t file because they know that even if they are eligible for the EITC, they owe student loan debt, or back taxes, or child support, and they won’t get the credit – it will be taken to go towards those debts.

Even if she does manage to file, and can get the payment, Sharon doesn’t have a bank account, like millions of other Americans. It doesn’t seem worth it, given that she rarely has money to keep in an account, and she’s afraid of fees, particularly overdraft fees, which are disproportionately paid by low income people like her. She also worried that if the Social Security Administration saw her sporadic research stipend payments, they’d cut her SSI payments. So, her only option will be to get the stimulus payment by paper check. Not only will that take longer, but Sharon will have to go out and find a place to cash the check – at a time when she’s reluctant to go anywhere at all beyond the grocery store when necessary – and pay the corresponding fee.

It is tragic and absurd that some of the most financially vulnerable among us, who may be most in need of the stimulus check, will have to go through the most hoops to get it. I’m sitting here at home, with my and my husband’s salaries still being paid, and I don’t have to do anything because the IRS has my direct deposit information from last time I filed. The money will just drop into my bank account at some point, and I’ll have some thousands of dollars more, that I really don’t need. Meanwhile, the millions of Americans who receive SSI, or earn little or no income, so are likely more in need of money than most, are scrambling to work out what they need to do to make sure they get the payment. While handing out money sounds like a useful policy response, it is ultimately an inefficient and unfair way to manage the disastrous consequences of this public health crisis on households’ well-being.

How Will I Get My CARES Stimulus Payment if my Preparer Paid My Refund?

Today we welcome guest blogger Connor Moran. Connor practices business, estate, and tax law at the Portland, Oregon firm of Kell, Alterman and Runstein, including both planning and controversy work. He was previously a Senior Attorney at the Internal Revenue Service Office of Chief Counsel. At the University of Washington law school he volunteered as VITA tax preparer in Alaska for Native Fishing Communities as well as local communities in Seattle picking up his interest in assisting low income taxpayers. He writes today about one of the many issues that arises in connection with the rebate check and one that can prevent low income individuals from getting their check or cause them much effort to obtain it. Keith

Update: On April 21, 2020, the IRS released more information on this issue. https://www.irs.gov/coronavirus/get-my-payment-frequently-asked-questions#bank. The IRS states that in some cases, the payment may be loaded onto a prepaid debit card, just as the refund was. In other cases, the bank will reject the deposit and return it to the IRS. The IRS will process the payment and mail payment to the most current address the IRS has on file for the taxpayer.

The IRS also noted that a due to a reporting error the “Where’s My Payment” app sometimes stated that rejected payments were going to the same account a second time. According to the IRS, these payments were in fact to be mailed as checks  and not re-sent to the closed account.

If you experienced this issue and were not aware that your refund was paid through your preparer, you may reconsider your choice of preparers in the future. IRS and banking rules require clear disclosure of the use of these products and any associated fees. For many taxpayers, IRS FreeFile, available through the IRS website allows you to file without the fees associated with commercial preparers.

As most Americans know by now, the CARES Act instructs the IRS to send every non-dependent with a social security number a payment of $1,200 for an individual ($2,400 for a married couple), with an additional $500 for each child. The payments phase out for people with income over $75,000 for an individual or $150,000 for a married couple.

In order to get the money to you as soon as possible, the IRS will direct deposit the stimulus payment if the IRS knows your bank account. The IRS will rely on the bank account information reported on a taxpayer’s 2018 or 2019 income tax return in order to quickly deliver the checks to intended recipients.  For taxpayers who have not yet filed an income tax return for 2019 or for whom the filed 2019 return has not yet been processed, the IRS will use the information from the 2018 tax return, if filed.

The IRS is rolling out a “Get My Payment” application for taxpayers to enter direct deposit information if it’s not already on file, but reportedly this app cannot be used to update existing bank account information. The IRS’s description of Get Your Payment states that it will allow taxpayers who have not provided direct deposit information to provide bank information, but does not indicate that it will allow taxpayers to change information the IRS already has on file.

This raises a critical issue for the more than 21 million taxpayers who received refund anticipation checks, also known as refund transfers. This number comes from page 15 of an April 2019 GAO report addressing tax refund products.  If you received your refund from your preparer instead of from the IRS, whether as a check, as a prepaid debit card, or to your account via a bank rather than directly from the Treasury, this likely includes you.

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This issue generally arises when a low income taxpayer goes to a paid preparer and lacks the money to pay the preparer for the cost of preparation and/or wants the refund immediately rather than waiting for the IRS to deposit the refund in their bank account, if the taxpayer has one, or receipt of a paper check. Rather than pay up front for tax preparation services, the taxpayer agrees to let the preparer set up a temporary bank account into which the IRS will deposit the tax refund. Tax preparer fees are deducted straight from the refund, and the preparer either gives the taxpayer a check up front or a prepaid debit card that will be funded when the refund arrives.

See the problem?

If you used one of these services, the IRS doesn’t have your bank account information, but it maybe thinks that it does. The bank account numbers belong to a temporary account that does not belong to the taxpayer, and may no longer even exist.

This problem overwhelmingly affects low-income taxpayers who likely need these payments the most desperately.  While the IRS makes efforts to track when such products are used by taxpayers, the indicators used by the IRS are not without flaws.

Unfortunately, we simply don’t know how the IRS is handling this issue. If the IRS treats these temporary accounts as closed accounts, you would receive a check instead of direct deposit. As of April 9, 2020, one bank that works with many tax preparers to issue these checks and prepaid debit cards indicated that persons who used these services will receive checks from the IRS. The paper check is better than nothing, but means waiting months for money people need now.

Worse, the IRS may actually deposit funds to the accounts. As yet, the companies associated with these services have given no information about how they would handle such deposits. Given the industry’s track record, it is likely that such deposits would mean that money desperately needed by low-income people affected by the coronavirus will be subject to unnecessary fees.

What can taxpayers do?

Taxpayers who haven’t filed for 2019 can file for 2019 and provide their own bank account information, if they have a bank account. The vast majority of affected taxpayers qualify for free tax preparation through IRS Free File, MilTax, or Coast Guard benefits.

What should the IRS do?

From the IRS, ideally the Get Your Payment app would allow us to update direct deposit information the IRS has on file as well as add direct deposition information when the IRS doesn’t have it. Unfortunately, as Nina Olson wrote in her earlier post on Procedurally Taxing, the IRS is starved for resources, hampered by the pandemic, and working with an ancient computer system.

If the IRS cannot give us a way to update our information, at least it should provide guidance so we can predict and plan accordingly.

What should the tax preparation industry do?

From the tax preparation and tax financial service industry, we need an immediate commitment that they will loudly inform all customers filing now that using these products may delay or divert stimulus payments.

For customers who can’t pay up front for tax preparation services, the tax preparation industry must commit to informing taxpayers of free alternatives like IRS Free File and MilTax.

We also need commitments that preparers and banks will immediately forward any stimulus payments they receive to the intended recipients, without additional fees.

Nina Olson and the Congressman’s Late Mother

Regular guest blogger and sleuth Bob Kamman brings us a window into the administration of the 2008 Economic Stimulus Payments, newly relevant for the forthcoming 2020 Economic Impact Payments. Christine

In a recent comment here, I asked whether the Economic Impact Payments would be paid to deceased taxpayers and nonfilers.  If the former National Taxpayer Advocate saw the question, it must have brought back memories of her testimony at a hearing on June 19, 2008, before the Subcommittee on Oversight of the House Committee on Ways and Means. The subject was the Economic Stimulus program that had been enacted several months earlier. It included rebate checks of $300 to $600 for millions of Americans. 

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She was questioned by Rep. Lloyd Doggett, Democrat of Texas.  He still represents part of Austin, where at the University of Texas he earned his B.A. and J.D. degrees.  He was, and is, a member of the Ways and Means Committee.  He was not a member of the Oversight Subcommittee, chaired by Rep. John Lewis, but he was allowed to ask some questions because, obviously, something was on his mind.

He didn’t let on right away, what was bothering him:

Mr. DOGGETT. While I clearly am very concerned that all those who are entitled to this stimulus payment get it, I note,  as Mr. Johnson pointed out, that we have spent $300 million to ensure that it gets done right.

    I am also concerned about whether any of these payments are sent out to people that are not entitled to receive them. Are either of you involved on that end of it, to be sure that the stimulus payments only go to those who are entitled to receive them?

            Ms. OLSON. Well, I think that the–actually, the way that the legislation has been written is pretty tight, as—-

            Mr. DOGGETT. Well, let me tell you where it apparently wasn’t tight enough.

            Ms. OLSON. Yes, Sir.

            Mr. DOGGETT. Yesterday I received a notice dated June 16th  that my mother would receive her payment next week. My mother  died last September. Within a week of her death, because her  payments are direct-deposited into her account, I notified  Social Security, to be sure that we wouldn’t have any payment to which we were not entitled.

            Do you have any estimates? I extend this question–I may  not be able to stay for all their testimony–to the next panel,  as well. Do you have any estimate of how many dead people are  receiving stimulus payments?

            Ms. OLSON. Sir, I don’t. There is a question on the website that I will go back and look at that talks about decedents, and who is entitled to that payment in the course of the decedent, because it would be–the payment is based on their 2007 filing.  So she filed, or her–you know, her estate filed—-

            Mr. DOGGETT. Her estate filed—-

            Ms. OLSON [continuing]. A return for her. Perhaps under the  law, she is entitled to it, and I would have to check—-

            Mr. DOGGETT. Well, I would like to know about that, too.

            Ms. OLSON. Yes.

            Mr. DOGGETT. If, as a part of the stimulus–in her case, she does not have a surviving spouse–whether this payment goes  to estates of people this year or not, and what efforts–it surprises me that there has not been any update, if there has not, of the database to reflect that. Do you know—-

            Ms. OLSON. I will check on that.

Rep. Doggett then directed some questions to James R. White, from the Government Accountability Office:

Mr. DOGGETT. Do you know, Mr. White, if under this payments  can be made to the estate if there is no surviving spouse of someone who died last year?

            Mr. WHITE. I am not sure, off the top of my head. I–given the short period of time that IRS has had to implement the program, I don’t think yet there are good estimates of non-compliance problems. We are monitoring this as part of our filing season work for the Subcommittee on Oversight, and we will be reporting later this year.

            Mr. DOGGETT. Well, it’s been right at 9 months since I notified Social Security of this. You would certainly expect that they would have updated the database to show the correct information.

            Fortunately, they have not been sending, to my knowledge, any direct deposit of her Social Security check. You would expect that they would have it all–all the database–corrected in 9 months, wouldn’t you?

            Mr. WHITE. We are–this is something we are monitoring, and we will pursue as part of our ongoing work for the Subcommittee.

            Mr. DOGGETT. Thank you very much.

            Chairman LEWIS. Thank you. Now Mr. Brady is recognized for his questions.

That would be Rep. Kevin Brady (R-Tex.) from Houston, who was a Committee member but not on the Subcommittee. Rep. Brady wanted to make a point about the price of gas.

    “The question today deals with the technical aspects of delivery,” he said.  “But I think the bigger question on the stimulus checks is, is it working. Are these checks stimulating our economy across this country, as was hoped? I think the answer  is no, or certainly not as much as it could. There is reason for that.   In the past year, rising fuel prices have, I believe, neutralized the impact of the stimulus checks. Just in the past year, the average family in America is now paying $536.50 more for fuel than they were a year ago. It is hard to have–with $300 to $600 stimulus checks, it’s clear that these checks are being drained down our gas tanks.” 

After a brief soliloquy about dependence on foreign oil, he ended with, “Ms. Olson, I won’t ask you that question, the impact.”

Ms. OLSON. Thank you.

            Mr. BRADY. I will say, though, you have raised a separate issue from that, which I feel we ought to be exploring. That’s the issue of debit cards. Seems to me we need a–as much as we can–more of a 21st century response to challenges, short-term  challenges, like this.

            Can you comment on how those would occur, and who would be eligible to get them?

            Ms. OLSON. Well, I do think I have to say the IRS is  exploring the idea of delivering regular refunds on debit cards  as Social Security has started to use debit cards for those  individuals who don’t have bank accounts. There are savings to  the government in that regard, so that you don’t have to issue  paper checks.

            A debit card has an account number and a routing number,  just the same way as a bank account does. I think my  understanding is, with Social Security, that Treasury has  entered into a contract with one entity to deliver these cards.  It’s no fee to the individual receiving the card. It can be  done in any number of ways: people going into banks and picking  up a card, or being assigned a card themselves.

            So, I think that, you know, the–that would just–for those  individuals who are unbanked, or even in the area where we’re sending out paper checks, the delivery of dollars is so much faster if we’re delivering it electronically.

            Mr. BRADY. Yes.

            Ms. OLSON. The debit cards are just really, to me, as you said, a 21st century solution.

            Mr. BRADY. Those debit cards, since people are struggling  so much with high fuel prices, you know, if they weren’t able to afford something they needed, but instead had to buy higher gas, would they be eligible to use it at the gas pump?

            Ms. OLSON. Absolutely. The Social Security cards are used  anywhere that essentially a credit card is taken. So, at food stores, at gas tanks, at ATMs, et cetera.            

Mr. BRADY. All right. Thank you, Chairman. Yield back

While Rep. Brady was lamenting the rising price of gas and the national dependence on imported energy, Nina Olson located some information about payments for deceased taxpayers.  She asked,

Ms. OLSON. Mr. Chairman, may I answer Congressman Doggett’s question? I found—-

            Chairman LEWIS. Yes, you may, Ms. Olson.

            Ms. OLSON. Thank you. There is a FAQ on the IRS website that says, “If an individual dies, what happens to his or her direct deposit, or stimulus check?” The answer is, “Stimulus payments will be issued in the name of the individual eligible for a payment on a filed 2007 income tax return, or to the account designated by the individual on that return. Thisincludes situations where a person dies after filing a return, or where the final 2007 income tax return was filed by a personal representative or surviving spouse.”

            “Any issues or concerns involving a decedent’s filed return, or the related stimulus payment, should be addressed by the legal representative of the decedent’s estate.” So—-

            Chairman LEWIS. Now I turn to Mr. Pascrell for his questions.

So there you have it.  In 2008 the law was written as a credit on 2008 returns, but with an advance payment before the end of the year, based on information from the 2007 return.  The recipient did not have to survive until 2008.  I found an archived version of the 2008 FAQ to which she referred.  It was issued on March 17, 2008, only 32 days after the law was enacted. 

The 2020 law follows the structure of the 2008 law, except that it allows a look back to 2018 if no 2019 return was filed. It remains to be seen, whether IRS will apply it to decedents as was done twelve years ago, and how long it will take to decide. 

How Big Will My Recovery Rebate Be??

We welcome back guest blogger Bob Probasco.  Bob runs the tax clinic at Texas A&M but has many years of experience in accounting and law firms before taking on his current position.  This week we have been talking about offset and Bob raises another issue concerning offset that we have not discussed and that has not been discussed in the press concerning the CARES rebate.  We have made it clear that the CARES rebate passes by the normal offset provisions (except for child support) but Bob points out that maybe that overstates the way it will work.  Read on and let us know your thoughts.  Keith

PT has some recent outstanding posts by Carl Smith (Part I and Part II) and Nina Olson (Part I, Part II, and Part III) on the CARES Act, both generally and specifically concerning the Recovery Rebates (or “economic stimulus payments”).  If you haven’t read them yet, you should – I have a much better sense of the problems and likely results than I had before.  There has also been a lot of chatter recently on the Pro Bono & Tax Clinics community in ABA Connect, another great resource with very knowledgeable contributors from whom I’ve learned a lot.

Today, I want to discuss a question that I haven’t really seen mentioned elsewhere.  (Perhaps it has been, and I just haven’t been reading as widely as I’d like to during this hectic time.)  It concerns the amount of the advance refunds.  The impression many people have is that the advance refunds will only be offset against a taxpayer’s past-due child support obligations; otherwise, the taxpayer will receive the full amount. 

I’m not sure that’s correct.

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Section 2201(d) of the CARES Act states:

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) or by reason of subsection (c) of this section shall not be—

(1) subject to reduction or offset pursuant to section 3716 or 3720A of title 31, United States Code,

(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.

That sounds pretty good and has rightly been praised as a huge improvement over the 2008 stimulus payments. 

Carl’s Part II post discusses how the IRS was able to keep those 2008 payments under the terms of offers in compromise (OICs).  The Second Circuit approved.  I’m not entirely sure whether the terms of an OIC would take precedence over § 2201(d) of the CARES Act, but it might.  However, there’s another possible exception to § 2201(d), resulting from the structure of the advance refunds.

New § 6428(f)(1) states that taxpayers who were eligible individuals for their 2019 tax return “shall be treated as having made a payment against the tax for [the 2019 tax year] in an amount equal to” what would have been allowed as a refundable credit for 2019 if § 6428 had applied to 2019.   Section 6428(f)(3)(A) then goes on to say:  “The Secretary shall, subject to the provisions of this title, refund or credit any overpayment attributable to this section as rapidly as possible.”  That’s the actual authority to make the advance refunds and seems patterned after § 6402(a).

Treating the advance refund amount as a payment and then authorizing a refund of any overpayment is the same method used for the 2008 stimulus payments.  (Carl quotes the 2008 version of § 6428 in the comments of his Part I post.)  There are some obvious advantages of this method.  The stimulus payments are classified as tax refunds and therefore: (a) not taxable income and (b) not “resources” for eligibility determinations for benefits and assistance under Federal programs or State programs partially financed by Federal funds.

It also appears to have a possible drawback.  It works well if there is no balance outstanding for the 2019 (or 2018 if no 2019 tax return was filed) tax year.  The advance refund amount, treated as a payment, is the same as the overpayment.  It also works well if there was a frozen refund for 2019, as the frozen refund would not be “attributable to” Section 6428; only the advance refund amount would be refunded.  But what if there were a balance owed by the taxpayer for 2019?

Here’s a simple example.  Sam has filed a tax return for 2019, which the IRS uses to determine the advance refund amount.  Sam wanted to file the return in order to get an advance refund but was unable to pay the entire tax liability shown on the return.  There was a $2,000 balance owed to the government.  The advance refund amount for Sam is $1,200, so the IRS records a $1,200 payment in the 2019 tax year.  And there is no overpayment to be refunded; instead, there is now an $800 underpayment.  Sam receives no money now or when filing the 2020 tax return because the $1,200 has been offset against the 2019 tax liability. 

That seems inconsistent with the spirit of § 2201(d) of the CARES Act, doesn’t it?  This is a time to get money to people who desperately need it, not to recover amounts they owe.  Is this an unintended consequence, that the drafters did not anticipate?  But the same thing can happen on the 2020 return, if there is no advance refund – the refundable credit will not be refunded in full if the return shows a net amount due from the taxpayer before the credit.  So, a similar result with the advance refund may be intentional, or at least a result that the drafters knew about.

Maybe I’m missing something here.  If not, this may be an unpleasant surprise for those taxpayers it affects – hopefully few in number – after hearing the information that has been shared publicly about the rebate and advance refund provision.