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TaxWatch: The IRS sent thousands of third-round stimulus checks to dead people — that’s still a huge improvement from the first round

When it came to quickly distributing stimulus checks on a massive scale, the Internal Revenue Service worked out the glitches by the third round, according to a recent Treasury Department watchdog report — at least, for the most part.

The IRS correctly tallied the amount for 166.6 million people with an accuracy rate of 99.48%, the Treasury Inspector General for Tax Administration (TIGTA) said Thursday based on its review of 175 million third-round $1,400 stimulus check payments to more than 167 million people.

Still, the IRS sent out more than 1.2 million possibly erroneous payments at a cost of $1.9 billion, the watchdog said. Meanwhile, nearly 645,000 potentially eligible people could still be waiting for third-round stimulus payments that could come to a combined $1.6 billion.

The mistaken stimulus-check money included 9,592 payments to deceased individuals where the IRS had a date of death before payment, TIGTA investigators said. (The American Rescue Plan, which authorized the third wave of checks, said people who died before Jan. 1, 2021 weren’t eligible for payment.) These payments totaled between $13 million and $14 million, TIGTA investigators said.

Programming errors resulted in almost 45,000 payments to deceased dependents, coming at a cost of $64 million, they noted.

Mistaken payments running in the millions and billions are big numbers, to be sure — but they’re small compared to the number of potentially erroneous payments that went out in the spring and summer of 2020, during the pandemic’s early stages.

For example, the IRS sent out 4.45 million possibly erroneous stimulus check payments during the first round, at a cost of $5.5 billion, TIGTA investigators noted last March. That included 2.17 million payments for almost $3.5 billion to people who were dead, as indicated by IRS records, watchdog staffers wrote.

Some of the $600 second round of stimulus checks that began to roll out in late December 2020 had their own problems. An IRS data error set up almost 13 million second-round payments to temporary bank accounts, according to a TIGTA review last May.

Those temporary bank accounts, set up by tax-preparation companies, are a first destination for the refund before the remainder — minus the company’s fees — gets sent to the customer’s bank account. With the money in the temporary accounts, the money stayed out of people’s hands. Some payments were redirected to the right account, but in many cases in the IRS had to reissue payments.

“With each check, ‘the IRS rose to meet the challenge of identifying eligible individuals and issuing payments as expeditiously as possible; however, it is important to note that the tax system is primarily a collection system and not a payment program.’”

— Ken Corbin, the IRS’s chief taxpayer experience officer

The latest report comes as the IRS tries to clear a backlog of last year’s unprocessed returns and correspondence while also working through the income tax returns being filed this year. One reason the agency got behind the eight ball was the crush of work churning out three rounds of stimulus checks, IRS commissioner Charles Rettig has said.

After the third round of checks, the IRS also distributed $93 billion in advance child tax credit payments to eligible families from July to December.

The IRS didn’t immediately respond to a request for comment, but the agency did respond to TIGTA findings in the report itself.

When it came to checks for dead people, the IRS noted the date of death information had not been verified by the time it issued the payment. The agency issued another roughly 9,000 payments to dead people, but the IRS got the date of death after the money went out.

The IRS was “pleased” with the 99.48% accuracy rate when it came to correct payment size, wrote Ken Corbin, the IRS’s chief taxpayer experience officer and wage and investment division commissioner.

Put together, the three rounds were more than $800 billion “to hundreds of millions of deserving and needy Americans during the pandemic,” he wrote.

With each check, Corbin later added, “the IRS rose to meet the challenge of identifying eligible individuals and issuing payments as expeditiously as possible; however, it is important to note that the tax system is primarily a collection system and not a payment program.”

The third round of stimulus checks may now be a distant memory for many households, as inflation and high gas prices pinch budgets and spur consumer pessimism these days. But for some families, the $1,400 checks are making a welcome difference this tax season.

For example, if a child was born in 2021, the IRS wouldn’t yet have known about the infant in the household eligible for a $1,400 payment. The Recovery Rebate Credit on this year’s tax return is the time when parents can receive the payment, the IRS said.

The average size of tax refunds are noticeably up so far, compared to the same point last year. As of March 11, the average refund was $3,352, which is 13% higher than a year ago, IRS statistics show.

Belated stimulus-check tax credit claims and the enhanced child tax credit payments are two potential explanations for the increase, observers say.

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