The IRS has posted an Economic Impact Payment Information Center that addresses many frequently asked questions regarding the stimulus payments authorized by the CARES Act. However, like many things related to the act, there are remaining questions and gray areas not contemplated by the act or fully addressed at this time by the IRS. One of these questions is how to address the receipt of a payment for a deceased individual.
Many individuals have received direct deposits or jointly issued checks for their deceased spouses, while others have received checks sent to the last known address of their deceased loved one. Some of these checks have even had a “DECD” designation in the address, which indicates the IRS was aware that the individual was already deceased when it mailed the payment. There are also directions on the envelope of physical checks indicating that “if deceased,” to check the box on the envelope and drop it in a mailbox.
On May 6, 2020, the IRS published additional guidance to the Information Center with Question 10, “Does someone who has died qualify for the Payment?” This guidance was then updated on May 26, 2020. These new guidelines request the return of payments sent to any deceased individuals. This includes the direction for a partial return of $1,200 for payments made to married couples in error, as well as the return of the relevant physical check to the IRS for individual payments. The IRS then answers that the check should be returned for anyone who “died prior to the receipt of the payment.” Instructions for the return of the check or funds are included in a newly added Question 54.
The spouse or family member of a deceased individual may have received a check they have been able to deposit into a personal or joint bank account. The IRS is still directing that these payments should be returned. Likewise, a deposit into an estate or trust account appears to also be prohibited by the CARES Act because the definition of “eligible individual” specifically excludes an estate or trust.
Although not addressed in the act, the newly added guidelines state that the funds must be returned if the individual passed before the receipt of the check. In practice, this means funds directly deposited into an account the day before an individual passed would not need to be returned, but a check received in the mail one day after that individual passed would be subject to the instruction to return it to the IRS.
The IRS has not yet published any information on the possible penalties for the failure to return an improperly issued payment, nor is this addressed in the CARES Act.