(Updated May 21, 2020)

Shortly after stimulus checks started going out, I began receiving inquiries from taxpayers who had received checks intended for deceased relatives. Some media outlets – and politicians – wanted to make a big deal out of this, suggesting that it was indicative of something wrong at the Internal Revenue Service (IRS). Actually, it’s pretty logical. Here’s how that could happen and what you should consider doing next.

Remember that the checks are advances of a new, temporary credit for 2020. Since taxpayers haven’t filed for 2020 yet, the IRS will “advance” your payment based on your most recently filed tax return (2018 or 2019 tax return). 

In other words, the stimulus check acts like a refund for a new, temporary tax credit that you get in advance based on your 2020 income. That’s confusing because you don’t know how much you’re going to earn in 2020, but it’s why the IRS is using earlier returns. But since it’s an advance payment on a new credit does not affect your “normal” tax refund for 2020: you won’t lose out on your expected tax refund for 2020 with the check.

And of course, Social Security, Railroad retirees, VA and SSDI beneficiaries who do not usually file a tax return will receive checks automatically. 

Under the CARES Act – the law created by Congress authorizing the stimulus checks – there is no “clawback” provision. That means, for example, that a check that is sent to you in 2020 based on your 2018 that’s too much (because, say, your income will be too high in 2020) is considered a math error. You can keep it.

Sounds good, right? And the same reasoning should apply to stimulus checks sent to a decedent. There’s no mechanism for the IRS to get it back. And that’s what Congress intended because the idea was to get the money into the hands of taxpayers quickly.

That should be the case with a deceased taxpayer’s stimulus. Assuming that there’s no fraud, the checks were sent out by the IRS in good faith based on the available facts. There should be no reason to send them back.

That’s basically what an IRS spokesman, Eric Smith, told the Washington Post in April. “We are aware of all the various issues involving surviving spouses and other heirs and are still working on them,” he said, explaining that the payments may not have to be returned depending on the circumstances.

Most tax professionals – including me – agreed with that approach. 

According to Nina Olson, the founder of the Center for Taxpayer Rights and the former head of the Taxpayer Advocate Service, the Treasury Department may not even have the power to compel people to return the payments. “It may be the IRS made a mistake by making the payment to a deceased person. It can certainly ask folks to give the money back. I don’t see the legal authority for adjusting it on the 2020 return,” she told USA TODAY. (I agree.)

However, a week after Smith made his comments to the Washington Post, Treasury Steven Mnuchin told the Wall Street Journal that decedent’s checks should be returned. He didn’t offer any real support for this position, nor explain how this might happen. More importantly, no official IRS guidance has been released.

However, a taxpayer has reported that her stimulus check arrived in an envelope advising:

IF RECIPIENT DECEASED, Check here and drop in mailbox.

She even sent a picture:

(Spoiler alert: She’s not deceased, so she kept hers.)

But if she were deceased, there’s nothing in the law (so far as I see) that would oblige her beneficiaries to return the check.

And procedurally, there are still issues: 

  • What if the check was direct-deposited and not mailed?
  • What is the “cut off” for the dates of death? 2018? 2019? 2020?
  • What if the check is for joint taxpayers?

Statistically, the number of taxpayers in receipt of a check belonging to a decedent has to be very small. The U.S. population in 2019 was close to 328 million: on average, there are fewer than three million deaths in the U.S. each year. That means that less than 1% of Americans tend to die in a year. Assuming that the IRS sends checks to all decedents who would have qualified if they had lived, it’s a tiny, tiny number.

In contrast, I’ve received numerous reports from living taxpayers who have not received the right amount in their check or haven’t received payment at all. It might be a better use of Treasury’s time and other resources to track those down rather than find ways to attempt to clawback from widows and orphans.

In the meantime, I’ve been asked what to do with the checks. Some taxpayers have suggested that they want to return them: if you want to and it’s easy (like dropping it back in the mailbox), there’s nothing in the law that says you have to keep the money. But it may not be that easy. And, some tax and legal professionals have suggested that those in charge of estates might have a fiduciary obligation to keep and not return the money. It’s not clear.

On May 6, the IRS added the following FAQ answer on its website

A Payment made to someone who died before receipt of the Payment should be returned to the IRS by following the instructions about repayments. Return the entire Payment unless the Payment was made to joint filers and one spouse had not died before receipt of the Payment, in which case, you only need to return the portion of the Payment made on account of the decedent. This amount will be $1,200 unless adjusted gross income exceeded $150,000. 

I do not believe this is the correct interpretation under the statute. And as noted earlier, I don’t see how the IRS can claw it back if you don’t return it, and I don’t understand the rationale for the demand.

But this “advice” is on the IRS website. Keep in mind that if an FAQ is not published in the IRB, the IRS may change its position at any time. The IRS has made clear that FAQs “and other items posted on IRS.gov that have not been published in the Internal Revenue Bulletin are not legal authority . . . and should not be used to sustain a position unless the items (e.g., FAQs) explicitly indicate otherwise or the IRS indicates otherwise by press release or by notice or announcement published in the Bulletin.” So it’s not official guidance – the IRS even says so.

My advice: there is no direction – to date – that says you have to return the checks. I think it makes sense to hold onto the checks now and wait for official guidance from the IRS. If you have time-sensitive or more specific questions, check with your tax or legal professional. 

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Author

Kelly Erb is a tax attorney, tax writer and podcaster.

11 Comments

  1. Ray in Maryland Reply

    My stepdaughter’s boyfriend, who had not worked in over two years, was found unresponsive on January 21 and was declared brain dead on January 24. My MI stepdaughter had taken an Rx overdose on January 20 and was on life support when this occurred. The boyfriend drained her bank account (roughly $50) the very next day and apparently bought street drugs, while my stepdaughter was still on life support. We were only able to track him down because of the GPS tracker on his cell phone (which we were paying for) ,which indicated to what hospital he likely had been taken.

    Although he basically had lived off of my Stepdaughter’s disability checks (and our largess) for most of the last seven years, and was a active drug abuser much of that time, we were not related to him and my stepdaughter did not recover well enough mentally to be released from the hospital for almost two months. His uncle and niece evidently dealt with the hospital and the medical examiner directly, although we were interviewed by a detective investigating his death.
    After his death, his family set up a GoFundMe account to raise funds for cremation and a funeral service. After raising roughly $1100 from our family members (of the total of $1650 raised), we have been unable to reach the family to find out the cause of death, what they did re arranging for the disposition of his remains, or recover the cellphone that we bought for him in December (I cut off the service effective 2/20).

    Since both he and my stepdaughter used to live here, their mailing address is still our house. We have been dealing with his medical bills since his death (he had Medical Assistance). Since he did receive Unemployment Insurance in early 2018, he filed a tax return, & was due a refund (received by check), I told my wife to look out for a stimulus check, as I was certain that the family had not reported his death to the normal governmental authorities (such as the Social Security Administration). Sure enough, on Saturday May 2 the check came in the mail (I assume it is $1200 as we haven’t opened it).

    Under these circumstances, do we give it to the family or return it to the IRS? His bank account is long-since closed so I have no idea who is “entitled” to his “estate”. He owed us many thousands of dollars which we never expected to recover, even had he lived.

    My temptation is to send it back, unless his “estate” is REALLY entitled to it. Any advice?

    • Kelly Reply

      I would send it back to the IRS. I think you’ve done more than enough to help.

  2. Kathryn Morgan Reply

    Kelly, could the IRS be hanging their hat on Sec 6428(d)(3) that exempts estates from receiving the payments? Regardless of when the decedent died (as long as it was before the date on the check) would not the payment be part of the estate and therefore exempt? I just came across that today and it clicked for some reason.

    • Kelly Reply

      I say no. I think that section is intended to prevent folks who filed Form 1041 from getting a check (note the additional reference to trusts in that section). An estate is different from a decedent, both for taxes and legal reasons. I think this was a quick, political statement that was turned into an FAQ.

  3. I recieved a stimulus check made out to both me and my husband who is deceased. I can’t cash it because it requires both signatures. I can return it and not get anything. What’s the answer to this?

    • Kelly Reply

      If you return it, you should be able to claim the credit on your 2020 tax return.

  4. The problem is that the check is in the name of someone who is deceased, so how are you supposed to cash it without committing fraud? If you have an open probate estate, okay, but otherwise, you’d need the IRS to reissue the check in the name of someone living, and they aren’t likely to do that, especially not by December 31, and they’re prohibited from issuing advance checks after December 31.

    • Kelly Reply

      I’m certainly not advocating fraud. But there have been several taxpayers who have reported that checks were direct deposited into the accounts belonging to a decedent (including joint accounts). And there are instances where you don’t have to probate (small estate admins, for example).

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