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 already dead.
The problem arose during the pandemic when taxpayers tried to get their checks, only to be 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 not only didn’t receive their stimulus checks but were also blocked from filing tax returns or collecting refunds.
Getting off the dead list meant wading through red tape with the IRS or Social Security, which maintains the government’s chief death list.
“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’s already taken some steps to try to solve the problem, including a new annual review of the data that Social Security sends over to match death dates with IRS files.
The inspector general originally flagged 77,868 accounts it said showed signs of being erroneously deadlocked as of Jan. 1, 2022. The IRS rechecked and concluded that 20,222 of them had to be unlocked.
When the inspector general went back to update its numbers for 2022, it flagged 14,193 more accounts that may have been wrongly locked between Jan. 2 and Oct. 29 of that year.
The IRS was still reviewing those accounts, the inspector general said.
People’s accounts can be locked because of Social Security’s master death list, or because of an error at the IRS itself, 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 it can be as simple as a misplaced digit in a communication between a credit reporting agency and Social Security that leads to someone getting deadlocked. But 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 out $1.4 billion in stimulus checks to dead people. The agency said it didn’t think it was allowed to withhold the payments under the rules Congress had set.
That was a question of how to read the law.
A more persistent problem is the government’s records tallying who’s alive and who’s dead, and how that information is shared within agencies.
Social Security maintains the main list, known as the Death Master File, usually known as the DMF among government agencies. The file is built based on alerts from family members, funeral homes, banks, the postal service and other agencies.
Social Security will share the data in its files with other federal and state agencies that pay out benefits.
Errors can happen on both sides of the ledger.
In cases where a death isn’t reported, benefits can continue to be paid out 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 paid out a pandemic stimulus check in 2020.
Then there are cases where a death is recorded, but the person is still alive.
Sometimes that’s because 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 it’s just a data-entry error that leaves someone marked 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 for them 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.
While Social Security’s DMF is usually at fault, investigators uncovered some accounts the IRS locked even though the Social Security data didn’t flag them as deceased.
The inspector general said the IRS should make it clear on the notice that taxpayers can come directly to the IRS for help in clearing a lock, rather than directing them to Social Security.
In an official response to the audit, the IRS agreed to update its guidance for employees. But the agency rejected the suggestion of updating the notice, saying taxpayers “should not hesitate” to contact the IRS if they feel they haven’t been able to resolve the issue.