US pays $1.4bn of Covid-19 support to deceased taxpayers

The US government has paid out nearly $1.4bn (£1.1bn) of coronavirus support payments to taxpayers who were deceased and so ineligible, because of the failure to share data between the Treasury and the Internal Revenue Service (IRS), an audit watchdog has reported

The US Government Accountability Office (GAO) has published a report on the operation of the $2.4 trillion coronavirus relief package enacted in March.

This found that the IRS and Treasury made 160.4m payments worth $269.3bn to taxpayers as of May 31, but that this included payments to more than a million deceased individuals.

GAO said the IRS moved quickly to identify eligible recipients of the economic impact payments, and within two weeks of legislation being passed had disbursed more than 81m payments totalling more than $147bn, all through electronic transfers to recipients’ bank accounts.

However, the watchdog says the IRS and Treasury failed to co-operate to ensure claimants were eligible for support. 

 For example, the IRS typically uses third-party data, such as the death records maintained by the Social Security Administration (SSA), to detect and prevent erroneous and fraudulent tax refund claims. The Treasury and the body responsible for distributing payments, are not allowed such access under current legislation.

Treasury and IRS did not use the death records to stop payments to deceased individuals for the first three batches of payments, which accounted for 72% of the total, because of the legal interpretation under which IRS was operating, Gao found.

According to IRS officials, an IRS working group charged with administering the payments first raised questions with Treasury officials about payments to deceased taxpayers in late March as Congress was drafting legislation.

However, the IRS was told it did not have the legal authority to deny payments to those who filed a return for 2019, even if they were deceased at the time of payment.

This was because the Treasury said the legislation mandated the delivery of the economic impact payments as ‘rapidly as possible’, and so the Treasury and the IRS used many of the operational policies and procedures developed in 2008 during the financial crisis, for the stimulus payments. As a result these processes did not use the death records as a filter to halt payments to deceased taxpayers.

GAO was critical of this approach, because in 2013 it had identified weaknesses in IRS processes that allowed payments to deceased individuals and recommended corrective actions. As a result, IRS implemented a process to use death records to update taxpayers’ accounts in order to identify and prevent improper payments.

The GAO report stated: ‘Bypassing this control for the economic impact payments, which has been in place for the past seven years, substantially increased the risk of potentially making improper payments to decedents.’

In early May the IRS announced on its website that if a payment was issued to a deceased or incarcerated individual, the total amount should be returned. However, IRS does not currently plan to take additional steps to notify ineligible recipients on how to return payments.

GAO’s recommendations include changes to the legislation to allow SSA to share its full death data with Treasury for data matching to prevent payments to ineligible individuals.

It says that while having this access would not have prevented the economic impact payments to deceased individuals based on IRS’s initial legal determination regarding these payments, such access remains an important safeguard, and could help reduce similar types of improper payments in other circumstances.

In addition, the GAO’s report found the Small Business Administration (SBA) had processed over $512bn in guaranteed small business loans, but flagged concerns about fraud risks.

By mid-June, the SBA had made 4.6m guaranteed loans through private lenders to small businesses and other organisations adversely affected by Covid-19. GAO said pace of lending ‘contributed to confusion and questions about the program and raised program integrity concerns’, in particular because in order to make funds available quickly, SBA allowed lenders to rely on borrower certifications to determine borrowers' eligibility, raising the potential for fraud.

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