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Taxpayer Advocate seeks equal debt treatment for all COVID relief payments


The Internal Revenue Service has delivered two rounds of COVID-19 economic impact payments (EIPs).

The first was the $1,200 per person approved in late March 2020 under the Coronavirus Aid, Relief and Economic Security (CARES) Act. The second EIP for $600 per person was authorized at the end of last December as part of the Consolidated Appropriations Act (CAA), with payments distributed through the first two weeks of January 2021.

By now, folks know that if they didn't get the full amounts, which included additional payments for eligible dependents, they need to claim the Recovery Rebate Credit (RRC). You'll do that on your 2020 Form 1040, which the IRS will start accepting and processing returns on Feb. 12.

But what if your payment was short because the IRS withheld a portion because of debts you owed?

The differences in the laws authorizing the payments and the subsequent claims for missed amounts via the RRC mean that some folks won't get their full EIPs. And the National Taxpayer Advocates says that needs to be corrected.

Differing debt treatments: The IRS is allowed to subtract from regular tax refunds certain debts owed by filers. This typically happens when a taxpayer owes past-due child support, unpaid student loans and other federal and state liabilities. My blog post, Where's the rest of your tax refund? Being used to pay delinquent federal and state debts, has more on this process.

When it comes to EIPs, the CARES Act specifically said that the first coronavirus payments could be offset only in cases of unpaid child support. The CCA went a step further and prevented any offsets in the second round of EIPs.

However, when you file for any COVID-19 cash you missed out on in the advance EIP disbursements, the IRS will be able to take out any unpaid bills allowed under the offset rules. That means the coronavirus rebate credit claims are treated differently from the advance payments.

That also means, notes National Taxpayer Advocate (NTA) Erin M. Collins, that similarly situated taxpayers are treated differently.

NTA-blog-logoIn a recent NTA Blob post Collins points out that:

  • Eligible individuals who received the full amount of their EIPs in advance, despite having certain outstanding debts, did not have their payments subject to offset (with the exception of past-due child support).
  • Eligible individuals who did not receive the full amount of their EIPs in advance and have certain outstanding debts will receive a reduced RRC or none at all when they claim it on their 2020 tax returns later this year.

"This disparate result undermines public confidence in the fairness of the tax system," writes Collins. "Financially struggling taxpayers who were entitled to receive the full amount of the EIP last year but did not have effectively been harmed once. It is unfair to harm some of these taxpayers a second time by seizing some, or all, of their stimulus payments."

Expected refunds unexpectedly short: In addition, Collins points out that many taxpayers rely on federal tax refunds to pay for basic and necessary living expenses or to prevent hardships such as eviction or loss of utilities.

The filers' financial troubles are compounded since we still are in the midst of a pandemic that's produced historic unemployment levels.

"The reality is that many of the taxpayers who are most likely to be subject to offset – because they cannot afford to pay their bills and have unpaid debts – are the ones who need relief the most," writes Collins.

But there is a way these filers could get some relief.

IRS discretion to issue full refunds: Collins argues in her blog post for the IRS to exercise discretion when it comes to refund and rebate offsets. This is allowed under the Offset Bypass Refund (OBR).

Under the OBR, taxpayers experiencing economic hardship can request the IRS bypass any offset of their refund to repay tax debts.

Collins' post has more on this taxpayer-friendly option, as well as other alternatives that could help taxpayers who might miss out on the full economic impact payments or rebate credit. That's why her Jan. 28 blog item it gets this weekend's Saturday Shout Out.

I don't want to spoil her post, but the National Taxpayer Advocate does offer a bit of hope.

"After discussions with the IRS, I understand it has been looking into this issue and is exploring ways to exercise its discretion to help vulnerable taxpayers," Collins writes.

You also might find these items of interest:


Coronavirus Caveat & More Information
In 2021, we all still are dealing with extraordinary circumstances,,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.

But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.




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Roscoe Renner

Update here: https://www.taxpayeradvocate.irs.gov/news/nta-blog-update-on-offset-of-recovery-rebate-credits-the-irs-has-agreed-to-exercise-its-discretion-to-stop-offsets-of-federal-tax-debts/#:~:text=Good%20news%3A%20The%20IRS%20has,returns%20that%20claim%20the%20RRC.

Kay Bell

Roscoe, glad you got your storm issues taken care of. We were without water, too. Luckily, no damage. We were Texpatriates in the Washington, D.C., area when the anti-litter campaign came out, so we weren't familiar with that use of the phrase. We, like others not in the state, took it as another swaggering Lone Star State utterance meaning don't go up against Texas/Texans. Personally, I don't get the mess with meaning re litter; should be don't mess [up] Texas. So I wasn't thinking of the garbage angle when I created my blog back in 2005: https://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2005/11/its_the_most_wo.html Thanks for reading! Kay

Kay Bell

Roscoe, the last I've heard on the offset issue is the Taxpayer Advocate's raising of the issue with the IRS: https://www.dontmesswithtaxes.com/2021/01/taxpayer-advocate-seeks-equal-debt-treatment-for-all-covid-relief-payments.html But no final word from either side yet. Kay

Roscoe Renner

Don't Mess With Texas is actually an anti-litter campaign. Ironic that the tax code is pure garbage. You don't need to approve this. Just thought I might give you a chuckle. I reside in the DFW area and luckily my power stayed on, I have a fixed rate electricity plan, and the two pipes that burst were in my garage. Melted snow to flush toilet bowls while water was turned off, until pipes were fixed.

Roscoe Renner

Thank you for the article Ms Bell. Is there any follow up about the IRS actually using it's discretion to issue the full RRC even if back taxes are due? It seems a lot of folks agree it would be the right thing to do, but unless IRS makes it policy and implements software changes to 1040 processing, the RRC will probably be grabbed for back taxes.

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