The Trump administration wants money back from the bereaved — but enforcing that could get messy

To recover erroneous stimulus payments, the IRS would likely need to audit thousands of Americans who are mourning the recent death of their loved ones, writes US political correspondent Griffin Connolly

Treasury Secretary Steven Mnuchin, left, and Donald Trump have said they will get stimulus money back that erroneously went to dead people. (Photo by AP) (AP)

Like millions of couples across the US, Shannon Campbell received $2,400 in coronavirus stimulus money from the government in her bank account on 15 April: $1,200 for her, $1,200 for her husband.

The problem is, her husband died of glioblastoma last year.

The Treasury Department didn’t know that because the 2018 tax return it used to pay Ms Campbell her stimulus check was a joint filing with her late husband that listed their shared bank account.

Ms Campbell, of Texas, is one of thousands of people in this country with recently dead relatives who received more money than they should have from the IRS as the $2.2trn coronavirus package passed in March and known as the CARES Act was rushed out the door to jolt the economy with direct cash payments to most taxpayers.

For weeks, Ms Campbell, like many other newly widowed and bereaved Americans, did not know what she was supposed to do with the extra $1,200: whether the IRS would let her keep it or whether it would claw it back in the next filing period.

So she squirrelled it away in her bank account.

Good thing, too.

Because it wasn’t until three weeks later, on 6 May, that the IRS finally updated the information page for the economic stimulus payments on its website directing people who received extra money for dead relatives that it “should be returned to the IRS by following the instructions in the Q&A about repayments.”

That directive is Answer No 10 to Question No 10 out of 41 FAQs on the IRS website.

No big announcement, no media push to reach as many bereaved Americans as possible.

Just a vague promise by Donald Trump at his 17 April White House coronavirus briefing that the government would "get that [money] back” and a similarly vague comment to that effect from Treasury Secretary Steven Mnuchin to the Wall Street Journal on 28 April.

Ms Campbell is “so irritated,” she told The Independent recently, noting that not only did the government’s erroneous payment open up the still-fresh wound of her husband’s death, but the absence of follow-up communication kept her and thousands of other widows in a financial limbo.

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“They screwed up, and not until [three weeks later] do they finally say, ‘Hey you can't have all that money,’” Ms Campbell said.

“Here is my conundrum: What happens to those who spent the money in the last [several weeks] since they received it?” she said.

The answer isn’t entirely clear, but most tax experts believe the IRS cannot legally enforce its entreaty for bereaved relatives to return the money.

First off, an answer in an FAQ webpage does not carry the force of law subject to the Administrative Procedure Act and other formal guidance on procuring money from Americans.

“There remains the gap between ‘should’ and ‘must,’ which implies enforcement,” said Gordon Gray, the director of fiscal policy at the American Action Forum and a former Senate Budget Committee staffer.

“If folks get checks erroneously, the [US government] is not unsurprisingly instructing people to return erroneous payments — but that doesn’t mean that taxpayers are legally obligated to or face penalties if they fail to do so,” Mr Gray said.

Secondly, the logistical hassle of figuring out who died and who received the money on their behalf could be bad politics for the Trump administration.

Yes, the IRS can comb through the Death Master File compiled by the Social Security Administration to determine whether anyone who received a stimulus payment has died. But the Death Master File does not identify the surviving family member who actually received the payment.

The IRS can also look through final tax returns that executors of estates of the recently deceased must file. For people who died in 2018 or 2019, those final tax returns must be filed by the IRS’ 15 July deadline this year, if they haven’t already been filed. For someone who died in 2020, that final return will not be filed until 2021.

The executor’s name would, of course, appear on that final tax return since they’re the one filing it on behalf of the decedent, thus providing the IRS a lead on who may have received the stimulus money.

But the IRS can’t know for certain if the executor of that final tax return is the person who received the stimulus money from the CARES Act. It would have to further investigate each individual case.

Translation: To get the money back, the IRS would need to audit thousands of Americans who are mourning the recent death of their loved ones — all for $1,200 per person.

That’s not exactly cost-efficient or good optics for Mr Trump, especially in an election year while the US economy is in freefall.

“I cannot imagine an aggressive campaign to get the money back,” said Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center.

“At a maximum of $1,200, the costs of collecting the money back in an audit would probably exceed the return. And that is not even considering the public perception problems, especially if the decedent died this year of coronavirus,” Ms Holtzblatt said.

So while the IRS is, in effect, asking for its money back, it is highly unlikely that the bereaved relatives who benefited from the rush last month to get the money out the door will face any consequences for keeping it.

Ms Campbell said that while she has not yet spent the extra $1,200 she received for her late husband out of an abundance of caution, she is not inclined to give it back.

“If the government thinks I will voluntarily return it, they are sadly mistaken,” she said.