*Update (10/19/20): Per federal court orders, incarcerated individuals may now apply for stimulus payments.  The current deadline to apply is November 4, 2020.  More information is available at this link.

In response to the public health and economic challenges of COVID-19, Congress in March 2020 enacted the CARES Act.  We have written at length about the Small Business Administration’s unfortunate and unauthorized disqualification of small business owners from Paycheck Protection and disaster relief because of their criminal record.  It turns out that the SBA is not the only federal agency discriminating against people with a record in carrying out the CARES Act.  The IRS has also gotten into the act, in what may be an even more lawless fashion.

The CARES Act authorizes stimulus payments in the form of a tax rebate of $1200 per adult and $500 per child for households with incomes below a certain level.  See P.L. 116-136, sec. 2201.  Specific categories of individuals are excluded from receiving these payments (e.g., any “nonresident alien individual” or an estate or trust), but nothing in the CARES Act excludes people who happen to be in prison or jail or any other detention facility.  Likewise, no federal regulation excludes incarcerated individuals from receiving CARES Act tax rebate payments.

That didn’t stop the IRS from taking matters into its own hands, just as it didn’t stop the SBA.

Despite an apparent lack of legal basis, the IRS announced on May 6 through an FAQ on its website that “someone who is incarcerated” does not qualify for a CARES Act stimulus tax rebate.  Thus, a “[p]ayment made to someone who is incarcerated should be returned to the IRS.”  To define who is considered incarcerated for this purpose, the IRS relies on a provision of the Social Security Act that requires suspension of old age, survivor and disability benefits for any 30-day period in which the person is confined in a penal institution for a conviction.  But authority to temporarily suspend monthly Social Security benefits for a limited period during which a person is incarcerated does not appear to provide a legal basis for the IRS to declare a person entirely ineligible for a CARES Act tax rebate.  And, the situations are entirely different as a factual matter.

Following the IRS’ May 6 pronouncement, the American Enterprise Institute (AEI) and Prison Policy Initiative (PPI) pointed out the lack of legal basis for the move.  Alan D. Viard at AEI cited Professor Patrick Thomas of Notre Dame Law School, who commented that the IRS position on incarcerated individuals is “flat wrong” because it “contravenes the clear text” of the CARES Act.  Professor Thomas urged that the IRS position be rescinded or challenged.  Stephen Raher of PPI emphasized that IRS failed to follow the standard rule-making process: “Instead, it appears that IRS made up this ‘rule’ out of whole cloth and announced it by posting it on a webpage.”

[*Update (10/19/20): Per federal court orders, incarcerated individuals may now apply for stimulus payments.  The current deadline to apply is November 4, 2020.  More information is available at this link.]

Like people on the outside, if not more so, incarcerated individuals have experienced health and financial impacts from COVID-19.  But at the moment, there do not seem to be any lawsuits or legislative efforts to remedy this seemingly lawless agency action to withhold from them stimulus payments duly authorized by Congress.  Hopefully, now that the SBA situation has been eased to some extent and will otherwise be resolved in court, attention will turn to the tax collectors.