IRS Accidentally Sent Out $800 Million In Improper Recovery Rebate Payments

( A new report sent from the Treasury Inspector General for Tax Administration has revealed that the Internal Revenue Service may have issued up to $898 million in improper Recovery Rebate Credit payments.

According to the report, the amount of Recovery Rebate Credits that should’ve been paid to the eligible individuals was $79.8 million. Instead, $818.5 million was given out to individuals who were ineligible to receive the credits.

The Inspector General’s report also noted that the IRS declined to ultimately review almost $598 million of those improper payments, and then take the necessary actions that would’ve been needed to recover the funds.

In addition, the IRS has told the Inspect General’s office that it doesn’t have any plans to help the nearly 10 million individuals who could be potentially eligible for the credits to receive them.

The Recovery Rebate Credit was part of the CARES Act, passed in March of 2020 at the outset of the COVID-19 pandemic. It was meant to provide a jolt to the economy when everything shut down out of nowhere.

The refundable tax credit gave eligible adults up to $1,200 that would be applied to their tax liability for the 2020 tax year. Most taxpayers ended up receiving these Economic Impact Payments directly in their bank accounts. Others received a debit card sent to them via the mail.

If individuals didn’t receive the payment, they could instead claim the credit on their tax return. An additional $500 per-child credit was available for families that had a child 17 years old or younger in their household.

Another RRC of as much as $600 was added under the Consolidated Appropriations Act of December 2020, with another $600 available for each eligible child. Taxpayers then had to enter whatever amount they received as either payments or tax credits when they filed their annual taxes, and the IRS would end up reconciling it all once the records were set.

As of late May of 2021, the IRS processed a total of 26.3 million tax returns that had RRC claims on them, which totaled $39.2 billion.

The Inspector General’s office found the agency calculated the allowable RRC correctly on 26.1 million of these returns, or 99.3% of them. However, 181,743 of the returns had issues, either with IRS programming problems, timing issues or mistakes with the Error Resolution function tax examiner.

These mistakes all led to the taxpayer receiving the wrong amount of RRC. Another 355,015 individuals who were potentially ineligible to receive the payments were sent an RRC erroneously, the report said.

These individuals included non-residents, dependents who were ineligible and individuals associated with a credit from a U.S. territory.

The Inspector General’s report also identified another 10 million individuals who could be potentially eligible for an RRC but who hadn’t received the proper amount as of May 27, 2021.

The report stated that many people mistook the debit cards sent to them in the mail as junk mail and threw them away. The report concluded:

“Finally, debit card policies and the decision to manually verify RRC claims unnecessarily burdened taxpayers and delayed access to stimulus payments for some taxpayers.”