For Deceased Individuals, the IRS Wants its Stimulus Payments Back

I was meeting with a client recently who wanted her Will and other documents signed. Her father had passed away a few months ago and during the signing, she told me that she had just received a check from the IRS for $1200 made payable to her father. She asked me what she should do with this check. I told her that I did not know and that I would get back with her.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed by Congress and signed into law by the President on March 27, 2020. According to the U.S. Department of Treasury’s website, “[t]he CARES Act provides fast and direct economic assistance for American workers, families, and small businesses, and preserve jobs for our American industries.” The U.S. Department of Treasury’s website continues by stating the following:

The CARES Act provides for Economic Impact Payments to American households of up to $1,200 per adult for individuals whose income was less than $99,000 ( or $198,000 for joint filers) and $500 per child under 17 years old – or up to $3,400 for a family of four.Additionally, the IRS will use the information on the Form SSA-1099 and Form RRB-1099 to generate $1,200 Economic Impact Payments to Social Security recipients who did not file tax returns in 2018 or 2019. Recipients will receive these payments as a direct deposit or by paper check, just as they would normally receive their benefits.Treasury is launching a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive payments immediately as opposed to checks in the mail.

After the conversation with my client, I asked a few other attorneys if they knew the answer. They were as baffled as I was. I then went to the email listserv for North Carolina Estate Planning & Fiduciary Law Section of the North Carolina Bar Association where there were several questions about this, but there were no clear answers. Some attorneys stated that the estate of the deceased individual should keep the check while others said that it should be returned. There were even articles in national publications, some of which made arguments for keeping the money – one questioning whether or not the IRS is going to audit closed estates and heirs for $1200 and another that said clawing back the money would mean taking money away from widows and widowers.

Over the next few days, I had many more clients reach out to me by asking the same question – “What do I do with the Stimulus Payment that I received for my deceased relative?”

At the top of one of the envelopes that I was able to see was a box and beside the box were the instructions “IF RECIPIENT IS DECEASED, Check here and drop in mailbox”. Ironically, several of the checks that I reviewed were made payable to the deceased individual followed by “Dec’d” and then the name of the executor was listed below. I began to realize that these payments probably should be returned. Nevertheless, I instructed my clients to hold on to the payments until the IRS issued further guidance.

On May 6, 2020, the IRS issued guidance at https://www.irs.gov/coronavirus/economic-impact-payment-information-center#more titled “Economic Impact Payment Information Center”. Ironically, I found out about this website through an NPR article titled “The IRS Sent Coronavirus Relief Payments to Dead People”. The guidance issued by the IRS’ had question 10, which asked: “[d]oes someone who has died qualify for the Payment?” The answer is as follows:

A10. No. 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.

The “instructions about repayments” hyperlink listed under answer 10 pointed me to question 41 on that same webpage, which asked, “[w]hat should I do to return an Economic Impact Payment (EIP)?” The answer is as follows:

A41. You should return the payment as described below.
If the payment was a paper check:Write “Void” in the endorsement section on the back of the check.Mail the voided Treasury check immediately to the appropriate IRS location listed below.Don’t staple, bend, or paper clip the check.Include a note stating the reason for returning the check. If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP and the taxpayer identification number (social security number, or individual taxpayer identification number) of the recipient of the check.Include a brief explanation of the reason for returning the EIP.If you live in Alabama, North Carolina, North Dakota, South Carolina, South Dakota or Tennessee, these checks should be mailed to the following address:

Memphis Refund Inquiry Unit
5333 Getwell Rd Mail
Stop 8422
Memphis, TN 38118

To recap, it is now clear that if an individual died before receipt of the Stimulus Payment in the form of a paper check, then you should return that check by following the instructions located in the first part above under A41.

If an individual died before receipt of the Stimulus Payment in the form of a paper check and such check has already been deposited or cashed OR if the Stimulus Payment was a direct deposit, then you should follow the instructions located in the second part of A41 above. Please keep in mind that if the check was $2400 made payable to a married couple and one spouse had passed away before receipt of the check, then only $1200 should be returned to the IRS. Such checks and any explanations should be mailed to the Memphis address above if you live in one of the six states listed there.