Hear that? It’s the sounds of the Internal Revenue Service (IRS) trying to retroactively impose rules on stimulus checks being paid out under the CARES Act.

The latest target? Incarcerated persons.

On May 6, 2020, the IRS posted the following FAQ on its website:

Q12. Does someone who is incarcerated qualify for the Payment? (added May 6, 2020)

A12. No. A Payment made to someone who is incarcerated should be returned to the IRS by following the instructions about repayments. A person is incarcerated if he or she is described in one or more of clauses (i) through (v) of Section 202(x)(1)(A) of the Social Security Act (42 U.S.C. § 402(x)(1)(A)(i) through (v)). For a Payment made with respect to a joint return where only one spouse is incarcerated, you only need to return the portion of the Payment made on account of the incarcerated spouse. This amount will be $1,200 unless adjusted gross income exceeded $150,000.

There’s just one problem: there is no such limitation in the CARES Act. And, as noted with respect to decedents (posted yesterday), there’s no direction about what to do if those checks have already been cashed (or worse, spent). Keep in mind that as of today, Treasury says that more than half of all payments have been delivered… And yet, these rules were just posted today.

To be clear, there are some instances where Congress intended to keep those who are incarcerated from benefiting from relief. For example, at CFR §120.110 (Code of Federal Regulations), businesses with “an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude” are ineligible for applying for Small Business Administration (SBA) loans. And that’s real authority: the CFR is the codification of the general and permanent rules and regulations published in the Federal Register.

In contrast, this is an FAQ on the IRS website. Keep in mind that if an FAQ is not published in the Internal Revenue Bulletin, 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.”

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Kelly Erb is a tax attorney and tax writer.


    • Kelly Reply

      This is tricky. I think the IRS is wrong in their interpretation of whether incarcerated folks are eligible for a check. The problem is that if that’s their position, asking them for help (even if they were answering the phone) isn’t going to work. I think your best bet is to return the check and then claim the credit on your 2020 return.

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