Court Orders IRS to Pay $100 Million Worth of $1,200 Stimulus Checks to Prisoners

By Madelaine D. First Posted: Oct 06, 2020 04:44 AM EDT

The Internal Revenue Service (IRS) has been ordered to pay $100 million worth of stimulus checks in a lawsuit concerning incarcerated individuals.

U.S. District Court Judge Phyllis Hamilton issued the order on September 24, certifying a nationwide class of incarcerated people and granting a preliminary injunction requiring the Treasury Department and the IRS to stop withholding stimulus checks based on their incarceration status only, as per Forbes.

Judge Requires IRS to Pay $100 Million Worth of $1,200 Stimulus Checks to Prisoners

(Photo : Zach Gibson)
Americans File Their Returns On Tax Day 2019 WASHINGTON, DC - APRIL 15: The Internal Revenue Service (IRS) building stands on April 15, 2019 in Washington, DC. April 15 is the deadline in the United States for residents to file their income tax returns.

Hamilton required the government to reconsider prior stimulus check applications' denials that were due to the individual's incarceration status within 30 days.

Within 45 days, the IRS and Treasury Department should file a declaration confirming these steps have been implemented to ensure accountability. Hamilton said it must include data that contain the number and amount of benefits that have been disbursed.

According to a Treasury Department's Inspector General report, at least 80,000 incarcerated people were eligible for the economic impact payments of more than $100 million as of May 2020.

These are the individuals who should receive stimulus checks as they needed financial infusion in the coming months. Other incarcerated people who have not filed a claim are also eligible now.

Yaman Salahi, a partner at Heimann, Lieff, Cabraser, & Bernstein, who represents the Plaintiffs and Class, said: "The country is suffering amid the COVID-19 pandemic and economic crisis. The incarcerated people and the families they rely on for support are no exception."

Salahi noted that Hamilton's order ensures that incarcerated individuals will receive the needed economic assistance allocated by Congress.

The case emerged after the passage of the CARES Act, which includes a mechanism for the IRS to distribute economic impact payments (EIP) to eligible Americans. Last May 6, the IRS updated responses to EIP "Frequently Asked Questions" and stated that incarcerated individuals do not qualify for stimulus checks.

The Treasury Department and the IRS subsequently refused to provide payments to eligible imprisoned people. The agency "worked with federal and state prison officials to assist in the return of payments made to incarcerated individuals," according to the General Accounting Office report.

The prison systems across the U.S., including California, Idaho, Kansas, Arizona, Montana, Mississippi, Vermont, and Pennsylvania, intercepted mailed payments to people in state prisons as a result. These people were deprived of stimulus funds.

Several legal experts questioned the basis for the IRS's actions. They argued that it acted "beyond its authority, perhaps even illegally." The CARES Act has not mentioned incarcerated individuals. According to Patrick Thomas of Notre Dame Law School, this makes the IRS in a wrong position because it opposes the exact "text" of the Act.

Others believed that the agency did not follow its processes. Stephen Raher of the Prison Policy Initiative noted that "It appears that the IRS made up this 'rule' because of whole cloth and announced it by posting it on a webpage."