The IRS has taken plenty of flak for sending stimulus checks to dead people, but a new inspector general’s audit says the agency also has the reverse problem: It refused to send checks to some living people, claiming they were dead.
The problem arose after the onset of the pandemic. Taxpayers trying to get their checks were told their accounts were locked because the IRS thought they were dead.
Tens of thousands of accounts were deadlocked, the inspector general said, meaning the taxpayers didn’t receive their stimulus checks and were blocked from filing tax returns or collecting refunds.
To be removed from the dead list, the taxpayers had to wade through red tape with the IRS or Social Security Administration.
“Although the deceased account lock is designed to prevent the filing of fraudulent tax returns, when there is an error, the unintended consequence is that legitimate taxpayers cannot file a tax return and receive a refund,” the inspector general said. “These errors increase taxpayers’ burden to get the matter resolved as well as the IRS’s workload due to the receipt of additional telephone calls or correspondence from taxpayers.”
The IRS said it took steps to solve the problem. One was an annual review of data that the Social Security Administration sends to the IRS to match death dates with files.
The inspector general originally flagged 77,868 accounts showing signs of being erroneously dead-locked as of Jan. 1, 2022. The IRS rechecked and concluded that 20,222 of them had to be unlocked.
When the inspector general updated its numbers for 2022, it flagged 14,193 more accounts that may have been erroneously locked between Jan. 2 and Oct. 29 of that year.
The IRS was still reviewing those accounts, the inspector general said.
Accounts can be locked because of the Social Security Administration’s master death list or because of an error at the IRS, the audit said.
Daniel C. Cohen, a lawyer at Consumer Attorneys, wrote about the issue in May, saying it “happens more often than you might think.”
He said the problem could be as simple as a misplaced digit in a communication between a credit reporting agency and the Social Security Administration. The consequences aren’t so simple.
“Being listed as ‘deceased’ by the IRS is a massive inconvenience,” he wrote.
Dealing with dead people has been a standing problem for the government.
Early in the pandemic, the IRS paid $1.4 billion in stimulus checks to dead people. The agency said it didn’t think it was allowed to withhold the payments under congressional rules.
That was a question of how to read the law.
A more persistent problem is tallying who is alive and who is dead and how that information is shared.
The Social Security Administration maintains the Death Master File, known as the DMF among government agencies. The file is based on alerts from family members, funeral homes, banks, the U.S. Postal Service and other agencies.
Social Security will share the data in its files with other federal and state agencies that pay benefits.
Errors can happen on both sides of the ledger.
When a death isn’t reported, benefits can be paid improperly. In one case, the nephew of a woman who died in 1971 was still collecting her checks nearly 50 years later. The government also sent a pandemic stimulus check in 2020.
Then there are cases where a death is recorded but the person is still alive.
Sometimes a wrong report is sent in. Other times, the agency gets an accurate report but matches it to the wrong person in the system. Sometimes a data-entry error marks someone as dead.
As of January, the IRS had dead-locked 52.5 million accounts over the agency’s history.
If someone tries to file a tax return for a locked account, the IRS issues a notice alerting the taxpayer to the attempt and suggesting avenues to challenge the lock.
The inspector general looked at 9,646 notices issued as of the start of last year and found that more than 70% of the time, the accounts shouldn’t have been locked.
Although Social Security’s DMF was usually at fault, investigators uncovered some accounts that the IRS locked even though the Social Security data didn’t flag them as deceased.
The inspector general said the IRS should make clear on the notice that taxpayers can contact the IRS directly for help clearing a lock rather than directing them to Social Security.
In an official response to the audit, the IRS agreed to update its employee guidance. The agency rejected the suggestion of updating the notice, saying taxpayers “should not hesitate” to contact the IRS if they haven’t been able to resolve the issue.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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