Creating Tax Policy and Tax Procedure on the Fly

The current situation allows us to observe the creation of new tax procedures based on new polices in real time.  Listservs and web sites are alive with discussion of what to do as the IRS tries to figure out procedures in a matter of days after passage of legislation creating new and immediately applicable tax provisions in the middle of tax filing season with most of its employees sitting on the sidelines.  We all have empathy for the people at the IRS trying to push out procedures to address the new provisions while at the same time feeling frustration based on the lack of guidance. 

A recent exchange on the ABA Tax Section listserv for Pro Bono and Tax Clinics caught my eye as a good example of the types of issues practitioners seek to work out in order to guide clients.  Some of our recent posts written by Nina Olson, Carl Smith, Barbara Heggie and Bob Rubin also address these same types of concerns.  We welcome guest posts that raise procedural issues that need answers.  We hope that perhaps the blog can serve as another outlet for passing questions that need answering to those at the IRS trying hard to provide those answers. 


It’s interesting, but not surprising, that many answers to the questions of procedure that require an immediate answer are driven not so much by policy as by computer capability.  Since the IRS has what some people might describe as a third world class computer system, some of the procedures that will apply will result from the quality, or lack thereof, of the computer system used by the IRS.  The computer capabilities at the IRS not only drive some of these decisions but are also hampering the IRS from having its employees work during this time when many are continuing to work from home.  Because many of the IRS employees do not have laptops they can use from home, they have been sent home not to work to help through this difficult time but just to sit.

Francine Lipman, William S. Boyd Professor of Law at University of Nevada, Las Vegas, William S. Boyd School of Law, writes first raising a few of the many unanswered questions concerning who will receive the rebates that the IRS will start sending out any day.

[w]e need guidance from US Treasury.

1) Will the IRS age adjust qualifying children to 2020? Or does a QC that is 16 in 2018 qualify for a $500 EIP if no 2019 tax return filed? And not qualify if a 2019 tax return is filed?

2) If one taxpayer claims a QC on her 2018 tax return and another claims the same QC on their 2019 tax return. What is the tie-breaker? 2019 > 2018? I do not believe they both get the $500 QC amount. What if someone else claims the QC in 2020?

3) If a taxpayer claims a 16 year old QC for 2018 and no 2019 tax return on record, will the 18 year old (former QC) nondependent get the full $1,200 when she files her 2020 income tax return or does she only receive $700 ($1,200 – $500)?

It seems to me that one long-standing rule of thumb that I believe will be applied to these EIPs is that the maximum amount of EIP per SSN will be $1,200. Thus, I believe these fact patterns will be interpreted to respect that long-standing guideline.

Responding to Francine, Bob Probasco, Director, Tax Dispute Resolution Clinic at Texas A&M University School of Law, responds.

Thanks, Francine.  There are those open questions and probably several others.

I suspect that the decisions – most of which have already been made or won’t be in time for advance refunds – will be driven by factors other than what makes sense from a tax law perspective.  They will be driven in part by:

● What has to be programmed now versus a year from now for processing 2020 tax returns

● Ease of programming in an antiquated system (Nina’s post on Procedurally Taxing,…, Is particularly scary)

● What can be programmed and tested and have a relatively low likelihood of significant glitches when they flip the switch

That is, we need to think about these issues not just from a legal perspective and from looking at the desired results but also from a programming perspective, what can be accomplished.  That may turn out to be a bigger factor than equity and legal interpretation.

The IRS certainly was starting their programming efforts before the final legislation was enacted but I’m not sure how much of a jump they had.  And they’re aiming at sending out the first batch of payments (by direct deposit) in a week to 10 days.  That very likely means that the small teams of IT people and IRS attorneys and whoever else had to make very quick decisions without the normal level of vetting we expect for guidance.  They had no choice if they were going to meet the deadline.  They didn’t have time to think through and identify all the issues – heck, the experienced tax practitioners here are still identifying nuances and will be for quite some time – and some issues they identified may have been too difficult to program easily.

We can speculate, for example, whether the programming is structured to crunch all the information for all taxpayers, do cross-checks between different returns, before making the final decisions which returns get how much money.  That’s complex, but doable.  It might lead to inequitable results, of course. 

As a trivial example, right now when two divorced parents each claim the same qualifying child for the same tax year, the IRS may not identify the discrepancy and follow up until a year or so later.  At that point, there may be a correspondence exam and a long process – including Tax Court – before a final determination of which parent is entitled to claim the qualifying child.  Lots of due process.  We have a case like that now.  But in the context of the advance refunds, they need to make a determination before sending payments out this month.  There are only two choices that appear even feasible as a matter of programming.  A, apply the AGI tie-breaker rule automatically.  B, allow both parents the $500.  Alas, choice A (1) increases the complexity of the programming and (2) raises additional due process questions.  How does the losing parent challenge that?  That might be difficult to impossible other than through the audit process applied to the 2020 tax returns.  But that delays receipt of the money for someone who may really need it and may not even come up in 2020 if the qualifying child has “aged out.”  It also invites gaming the system, particularly since a parent who improperly claimed the qualifying child but got the $500 this month apparently would not have to give it back on the 2020 tax return.  (Is there an exception to the “no claw back” rule for improperly claiming a qualifying child, or was that primarily intended for changes in AGI?)

And I’m not at all sure what happens in that trivial example if the 2018 return was joint, parent A files a 2019 single return before the first batch of direct deposit advance refunds, and parent B files a 2019 single return after parent A receives the advance refund.  Is “first past the post” (in the horse racing, not electoral, sense) an equitable way to decide who gets the $500??

These kinds of issues abound.  The programming team won’t have identified all the issues, and won’t have identified all the nuances and potential problems arising from different solutions.  There’s no way they can/could in a very limited time.

They also will likely be pre-disposed to simple decision trees rather than complex, nuanced ones.  The latter is risky.  Several years ago, in my pre-law school career, I managed a small team (IT folks and accountants from the user group) on a systems development project.  That system was much more straight-forward than anything we’re talking about here and the volumes of data we were working with were several orders of magnitude less than what the IRS will be dealing with.  We spent over nine months on the project.  (Maybe more, this was at least 30 years ago and my memory is a little bit fuzzy.)  At the end, after extensive testing, we flipped the switch to go live – and it didn’t work.  The people at the IRS are a lot smarter than I am but the task they’re facing is also light years more difficult.  So I expect them to err on the side of simplicity rather than complexity/nuance.

A totally uneducated guess (and your guess is better than mine) for those examples you raised:

1. Seems the most likely to be addressed in the programming (not sure in which direction) if the age information is easily accessible from the Form 1040.  (I should know whether it is but I’m drawing a blank at the moment.)

2. Assuming they do a complete crunch of all the tax returns and cross-check before deciding the advance refund amounts – which itself is a herculean task – they can resolve that.  But it becomes a legal issue in addition to a programming issue, and either way they decide it will be subject to second-guessing.  What would be the logical basis for deciding one way or another?  I’m not sure there is one – it would have to be a fairly arbitrary choice.  They might even duck the question and give the credit to both; it will be – relatively speaking – a small subset of qualifying children, and overpaying might insulate them from a lot of criticism based on sympathetic taxpayers.  Then they will have more time to decide what to do when the 2020 tax return rolls around.

3. Depends on the resolution of #1?  I suspect that if this is an issue, they will take their time to decide what to do when the 2020 tax return rolls around.  This isn’t a decision that needs to be made this month.

And, one final thought.  We may not get “guidance” in the normal sense.  They’re making the decisions about the advance refunds – indeed, they already have.  We don’t need to know in order to apply for an advance refund in the normal sense of “apply.”  And I’m not sure they envision a mechanism for taxpayers to challenge the amount of their advance refunds.  In which case, we don’t need guidance in the normal sense for the challenge process.  All they do in the short term may be to tell us “if you can’t figure out how we arrived at the amount of the advance refund you received, here is our decision tree; but you can’t challenge it now.  We’ll provide more guidance in the next several months and by then it may have changed.”

Francine responded to Bob with the following brief message:

I agree 100% about [the] lack of forthcoming traditional “guidance.” Perfect is the enemy of the good here and the theory of second or even third, fourth best certainly applies now with a global pandemic and a corresponding economic free fall.

Thanks Bob and Francine for giving all of us issues to think about as we navigate how to guide clients in the absence of guidance from the IRS and thanks to everyone engaging in these types of discussions that may eventually impact decisions.  Thanks to the IRS employees working hard to implement legislation passed in the middle of the filing season and in the midst of extremely trying circumstances.  Do the best you can under a situation never faced before.

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.


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.

Offsets in a Time of Coronavirus

As discussed in yesterday’s post, Congress has created an override of the normal offset provisions for the CARES rebate.  It does not matter how much a taxpayer owes the IRS for prior years, if a taxpayer qualifies for the CARES rebate, the $1,200 rebate will pass through the normal offset provisions without stopping to satisfy the outstanding federal tax liability.  This is a sign of how much the government wants to put these checks into the hands of taxpayers and signals a difference in approach from the 2008 rebate checks where a large number were siphoned off to pay prior debts.

Also discussed yesterday was the decision of the Department of Education to pull back from claiming an offset of federal taxes this year. 

While it is nice that the IRS seems to acknowledge a small loosening of the normal offset bypass rules by requiring less documentation to request an offset bypass, it could go further.  It could follow the lead of the Department of Education and simply pull back from making offset for a period of time to allow taxpayers to get their refunds this year because of the extraordinary circumstances.  The IRS has this discretion as discussed above because the statute says may.  Why not exercise this discretion in the same manner as another department of the federal government?  Why should the Department of Education be making a policy decision about waiver of offset during this period different from the policy decision made by the IRS?

The issue of pulling back from making IRS offsets for a period of time took on greater urgency yesterday with the closing of the last IRS campus still running.  As long as Ogden was open it was possible for TAS to reach out to IRS employees who could perform the OBR.  Now that all of the service centers are closed there is no one home to make the OBR.  Anyone with a critical need for their refund, will not have OBR as an option because of the absence of IRS employees who could perform the OBR.


On Friday April 3 the ABA Tax Section sent a letter to the IRS with a list of recommendations regarding how the IRS could respond to the COVID-19 impact on the tax system and on taxpayers.  One recommendation concerned offset and it provides:

… the Service has discretion to not offset a tax refund to cover a previous federal tax debt.20 In tandem with the stimulus checks provided by the CARES Act, offset bypass could provide powerful, targeted relief to those most in need. We recommend the Service provide relief from refund offset due to federal tax debt for all taxpayers with gross income less than 250 percent of the federal poverty line. In addition, we recommend the Service bypass refund offsets for returns claiming the earned income credit or additional child tax credit. Currently, the Taxpayer Advocate Service (“TAS”) assists with offset bypass refund (“OBR”) claims for individual taxpayers facing exigent circumstances. However, the tollfree number for TAS has been taken offline, and TAS local offices are busy meeting the demand of many struggling taxpayers and the challenges involved in remote work. TAS employees would be overwhelmed if they were required to individually request OBR for each eligible low-income taxpayer. A blanket policy of suspending refund offsets would enable TAS to focus on the many other taxpayer issues. Further, most low-income taxpayers are not aware of the OBR process and without Low Income Taxpayer Clinics (“LITCs”) and Volunteer Income Tax Assistance (“VITA”) sites to inform them, they likely will not know to request this assistance from TAS.

Yesterday’s post also discusses how IRC 6402 and the Treasury Offset Program (TOP) work.  Even if the IRS exercises its discretion in the statute to pull back from taking 2019 refunds to past due taxes, some taxpayers will still lose their refunds to other debts that participate in TOP.  For broader relief Congress would need to step in and provide some direction as part of the next relief package.

Offset is a powerful collection tool.  A 2016 Treasury Inspector General for Tax Administration report states that the IRS collected about $7 billion per year through offset.  By substantially turning off the computers which normally capture federal payments headed out to taxpayers with outstanding federal tax and other federal obligations, Congress has made a strong statement about the need to get money into the hands of individuals devastated by the economic impact of COVID-19.  Should it do more?

If Congress wants to be consistent with its actions in CARES, it could suspend TOP for this tax season (with the exception of past due child support payments).  Similarly, if the administration wants to be consistent with the action of at least one of its departments, assuming the statutes governing the departments have the permissive language similar to IRC 6402(a), the administration could grant relief from offset across the board for this tax season.  If there is no Congressional action to broadly suspend TOP, the administration could take the lead and follow the example set by the Department of Education by suspending offset to all federal agencies.  The IRS could independently exercise its discretion as recommended by the ABA and suspend offset.  There are many possibilities here but action should come quickly.

Refunds, Offsets & Coronavirus Tax Relief

We welcome back guest blogger Barbara Heggie. Barb is the Coordinator and Staff Attorney for the Low-Income Taxpayer Project of the New Hampshire Pro Bono Referral System.  A shout out goes to Silya Shaw for alerting readers of the Pro Bono and Tax Clinics listserv to the Department of Education action discussed below.  Les is also adding a new section on offset to Chapter 14A of the treatise “IRS Practice and Procedure” where you can soon find additional resources regarding offset issues.  This is the first of three posts discussing offset issues in this special time. Keith

For most low-income, working families, tax season is a time of hope – hope for paying off bills, getting caught up on rent, fixing the car, and maybe even signing up for that certificate program promising a better wage. This is because the Internal Revenue Code provides thousands of dollars in refundable credits for such families if they have “qualifying children,” including the earned income credit and additional child tax credit. For a family with three children under age seventeen and a household income around $20,000, the federal tax refund can amount to over $9,000.          

But what if there’s a federal tax liability from a prior year clouding the family’s financial picture? Perhaps someone was an independent contractor and didn’t pay sufficient self-employment taxes. Maybe someone completed a Form W-4 incorrectly and wound up grossly under-withholding. What will happen to the family’s current-year tax refund?            

And what about the new stimulus money – the “economic impact payments” – meant to help people get through the coronavirus crisis? Will this family see any of that money? What if jobs are lost and savings depleted because of this emergency? Does that make a difference?


The short answers are: (1) the “normal” refund will probably be offset to pay down the prior-year tax debt, unless the family succeeds in securing a discretionary “pass” from the IRS, known as an offset bypass refund; and (2) the economic impact payment will probably still come, so long as there’s no child support arrearage on the books for the family’s taxpayers.

Section 6402(a) provides that the Secretary of the Treasury Department “may credit the amount of [a person’s] overpayment, including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment.” (This is accomplished through the Treasury Offset Program.) Thus, the IRS may offset a person’s refund to pay down an old federal tax debt. The choice of the word “may,” rather than “shall,” means that Congress left an “out” for taxpayers; the Secretary doesn’t have to offset the refund.

The Internal Revenue Manual spells out how the Secretary should exercise this discretion, whether directly through the Internal Revenue Service (IRS) or by way of the Taxpayer Advocate Service (TAS). The mechanism for exercising the discretion is an offset bypass refund (OBR) which, in turn, depends on a showing of financial hardship. According to Internal Revenue Manual (IRM), “Hardship for this purpose is economic hardship within the meaning of IRC § 6343 and the regulations thereunder (i.e., unable to pay basic living expenses).” IRM stresses, “Handle each OBR on a case by-case basis. There is no exclusive list of expenses which would qualify a taxpayer for an OBR.”

Professor Keith Fogg blogged about OBRs for Procedurally Taxing in December 2015 and spelled out the mechanics of this tool. Traditionally, the amount of the refund offset that is bypassed via the OBR is limited to the precise amount that the taxpayer can document is needed in order to avert a specific financial catastrophe. Take the example of someone with a $3,000 federal tax liability for 2018 and an expected 2019 refund of $2,500. If the taxpayer requests an OBR and presents an eviction notice based on past-due rent of $1,000, the IRS might approve an OBR in that amount, assuming the taxpayer has also shown a lack of available assets to cover the back rent. Thus, the taxpayer would receive $1,000, and the IRS would use the remaining overpayment of $1,500 to credit the 2018 account. If the taxpayer also provided documentation of past-due medical bills, a utility shutoff notice, and an estimate for necessary vehicle repair – and if those totaled more than $1,500 – the IRS could issue a manual refund of the whole $2,500 overpayment.

But what if you can’t provide such documentation because a pandemic comes and your state issues a stay-at-home order and closes non-essential businesses, and you’re laid off and you lose Internet service? Are the traditional forms of proof necessary to secure an OBR? No, according to new guidance from TAS. A recent TaxNotes article published this guidance, TAS-13-0320-0008; it urges case advocates to consider the likelihood that a taxpayer’s ability to provide documentation of financial hardship may be impaired because of the unique circumstances and challenges of the coronavirus emergency. The guidance also reminds advocates of an important tool at TAS disposal whenever documentation can’t be secured, pandemic or no:

IRM 13.1.24. 6.2, Advocating for Taxpayers Seeking Offset Bypass Refund, clarifies when TAS can advocate for an OBR and, after an offset has occurred, when TAS can advocate for the reversal of the offset.

Many taxpayers seeking an Offset Bypass Refund will not have access or the ability to secure hardship documentation such as eviction notices, late bills, etc. Determine whether the taxpayer can validate the hardship circumstances through oral testimony or a third-party contact. If so, discuss the case with your LTA to determine if a written statement signed by the LTA confirming that the hardship was validated is appropriate. See IRM, Issuing Hardship Refunds, and IRM, Certifying Automated Clearing House (ACH)/Direct Deposit Hardship Refunds.

(Emphasis added.) The cited IRM provisions provide that a letter from the LTA verifying the existence of a hardship can take the place of third-party documentation.

But what if the federal tax debt isn’t the taxpayer’s only debt governed by section 6402 and the Treasury Offset Program? While Congress made the offset for federal tax debt discretionary, the Code section requires offsets for child support arrearages, non-tax federal debts, unpaid state income tax, and unemployment compensation debts. IRM thus concludes: “This means that the IRS has no discretion to bypass one of those debts.” Moreover, “the IRS has adopted a policy of not issuing an OBR when the taxpayer has both a federal tax debt and any other type of debt for which offset is authorized by IRC § 6402.”            

Interestingly, section 6402(e)(2) provides that an offset for a state income tax debt is permitted against a person “only if the address shown on the Federal return for such taxable year of the overpayment is an address within the State seeking the offset.” Thus, a current New Hampshire resident who incurred both a federal and a Vermont state income tax liability for 2018 might qualify for an OBR in 2020 on a 2019 overpayment.

Despite the statutory mandate for the IRS to offset the nontax debts listed above, other federal agencies have the discretion to halt any refund offset originating from debts they hold. For example, the Department of Education announced on March 25, 2020, that it “has stopped all requests to the U.S. Treasury to withhold money from defaulted borrowers’ federal income tax refunds, Social Security payments, and other federal payments.” Given the economic magnitude of the pandemic, the Education Secretary went even further and “directed the Department to refund approximately $1.8 billion in offsets to more than 830,000 borrowers.” Perhaps the IRS and TAS will issue new guidance clarifying that an OBR may be granted if the taxpayer has both federal tax and student loan debt.

And now, finally, what about the economic impact payments – the stimulus money – promised by the CARES Act? Are they subject to offset to pay down federal or nonfederal debt? With the exception of child support arrearages, the answer is no.

Section 2201(a) of the CARES Act inserts a new section 6428 into the IRC, mandating the payment of these “recovery rebates,” subject to income limits and phaseouts:

  • $1,200 ($2,400 in the case of eligible individuals filing a joint return), plus
  • an amount equal to the product of $500 multiplied by the number of qualifying children (within the meaning of section 24(c)) of the taxpayer.

(See here, here, here, here, and here for extensive discussions in Procedurally Taxing of these provisions, their possible implementation, and the concerns they generate.)

Section 2201(d) of the CARES Act, entitled “Exception from Reduction or Offset,” spells out a broad prohibition against offsetting the economic impact payments to pay down federal and nonfederal debt:

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.

The one exception is provided by omission; section 2201(d)(2) of the CARES Act lists IRC section 6402(d), (e), and (f), but not 6402(c). The first three subsections concern offsets of nontax federal debt, state income tax debt, and unemployment compensation debt, respectively; subsection (c) governs offsets of overpayments for child support arrearages.

Thus, economic impact payments/recovery rebates/stimulus checks cannot be offset to pay any debt except child support. “Normal” federal tax refunds remain fair game in the absence of an OBR, but OBRs may be slightly easier to come by in these coronavirus times.

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.

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.