Corona Cash and Refund Anticipation Checks

Vijay Raghavan, who will be joining the Brooklyn Law School faculty this summer shared a troubling observation about the payment of the recovery rebates ("Corona Cash" or "Mnuchin Mnoney") through direct deposit to taxpayers. It seems that the payments for around 15% of individual tax filings might be going to bank accounts that are closed or not controlled by the taxpayers. That 15% is surely a much larger percentage of households eligible for Corona Cash. I wouldn't be surprised if close to a quarter of eligible households are affected.

Raghavan writes:

Recovery rebates (stimulus payments) under the CARES Act are supposed
to go out this week. A number of people have noted that the payments
will be delayed for unbanked consumers and the funds are at risk of
being swept by lenders or debt collectors. What has received less
attention is the fact that many banked or underbanked taxpayers may
not receive their rebates because they financed tax preparation with a
refund anticipation check (“RAC”). [AJL: a RAC is distinct from a refund anticipation loan, when the preparer advances the taxpayer part of the anticipated tax refund.]

RACs allow taxpayers to defer the cost of tax preparation and finance
preparation out of their refund. The refund is deposited in a
temporary bank account that the tax preparer arranges to have opened.
The taxpayer may never be made aware that the temporary account
exists. The refund is then distributed to the taxpayer minus
preparation fees and ancillary fees via check, direct deposit, or
using some other payment instrument.

The conventional wisdom is RACs are primarily used by unbanked
consumers. But many banked or underbanked taxpayers may also use RACs.
Smaller tax prep chains and individual tax prep stores rely on RAC
financing for at least two reasons. First, the intermediaries these
tax preparers use to process the returns charge numerous
per-transaction fees, which are easier to pay for out of a taxpayer’s
refund since the cash-strapped taxpayer can’t afford to pay for the
intermediaries’ services up-front. Second, financing may serve to
conceal inordinately high tax preparation fees. As a result, it is not
uncommon to find tax preparation stores in low-income neighborhoods
that refuse to accept up-front payment and only process RAC-financed
returns. In the 2018 tax year, approximately 21 million returns were
financed with RACs. [AJL: for context, there were around 150 million individual returns filed in 2018.]

RACs present a few problems for stimulus distribution. If returns were
already filed and processed, the temporary banks accounts may be
closed, which will delay distribution of the rebate. If the temporary
account is still open, the rebate may sit in the account without being
distributed. There should be less problems if returns have not been
filed or are still pending. But if refunds are initially distributed
to the tax preparer as opposed to the taxpayer (which happens in some
cases), there is some risk tax preparer may take the CARES Act money.

The good news is large chains like H&R Block and tax software
companies should have bank account information for the returns they
processed. They could turn this data over to the Treasury but the
CARES Act may limit the Treasury's ability to disburse payments. The
CARES Act seems to only allow electronic disbursement to accounts the
taxpayer has previously authorized. Taxpayers who regularly financed
tax prep with RACs likely have not authorized disbursement to their
own bank account or may not maintain an open bank account in regular
use. Treasury probably has to lean on preparers and software companies
to ensure that payments to RAC-financed returns are disbursed to the
taxpayer bank accounts.

The problems in doing a quick disbursal of Corona Cash highlight some deficiencies in the US payment and banking system. The House counterproposal to the CARES Act had in it a provision for the creation of FedAccounts--giving every consumer a bank account held at the Fed. It's kind of late in the game to try and set up such a system to deal with the corona virus crisis, but the crisis is exposing areas that need to be shored up going forward. 

Comments

[Chi Chi Wu]

Good news (for once). We received information yesterday that the IRS will be able to make direct deposits of stimulus funds for a significant percentage of taxpayers who received RACs or RALs for Tax Year 2018/2019. Apparently, returns with a RAC/RAL do often include bank account information in addition to the temporary disposal account used to receive the RAC/RAL. This is called an "ultimate bank account", and we have been told it exists for the majority of RAC/RAL recipients. We have been told that the IRS/Treasury has made the decision to allow direct deposit into these accounts.

For a minority of RAL/RAC recipients, their RAL/RAC funds are disbursed in the form of a paper check or prepaid card. Unfortunately, these folks will receive a paper check for their stimulus payment.

[Sara WINTERLING]

I filed my taxes with H&R Block and I am now hearing that since I got the cash advance they are still trying to figure out if they are going to be able to put my stimulus check on my card since I had a cash advance does anybody know the status of this situation does anybody know if I'm going to have to wait for a paper check or is my stimulus check going to be able to go on to my H&R Block Emerald card since I got the cash advance

[Tineshia]

Hello! If my correct acct number is being displayed and when inquiring, and I receive a message saying that the stimulus payment should have been posted in my acct on yesterday (4/15) but it isn’t, how can I directly follow up with the IRS regarding this? I’m almost sure that I don’t owe any debt agencies and again, the website states that the funds were to be deposited on yesterday. Thanks!!

[Mustapha]

I used to received a check from my tax preparer whenever I file my taxes. So, when I check on IRS website and entered my info, it says that my money was scheduled to be deposited to my bank account 4/15/2020, with an account number of the the last 4 digits of my ssn, what does that mean?
Thanks

[Courtney McNeil]

If I filed with jackson Hewitt and got the ling do I have to waite on a check

[duckduck]

I owed the Feds for 2019. I filed through TurboTax and scheduled the payment from my bank account to be sent on 4/15. And the payment was made. However, a look on the IRS site reveals that somehow my “bank information is missing.” So, had to submit all of that again.

So, it’s not just people with refunds having trouble getting the Corona Cash.

[Bryan Price]

I filed my taxes at jackson Hewitt and I all read got my refund back in my bank account.i only got $1,000 on stimulus I was expecting 1700.how do I find out what happened to $700 of the stimulus check.

[L Kitch]

I used TurboTax last year and had my software fee deducted from my refund. IRS has the correct info, and their status says it was scheduled to be direct deposited into my account with the correct last 4 digits, but the money is not there. Who can I contact to track this down?

[James]

I got a Emerald card that has my direct deposit information sent by H&R tax professional . Where is my money people need it

[Jennifer]

We filled from H&r and it said are money should of been on there on the 15 we don't have it. I would like to know who to contact.......

[wanda johnson]

I filed with h&r block on line. it says I should have received a check on the 15th to my bank account but yet I have not received anything. I would like to know who to contact?
Wanda in Louisiana

[Patricia]

I have used TurboTax for several years now but I didn't file taxes for 2018 or 2019 because I didn't have any income. The bank info from 2017 return through TurboTax is still a active account I use, but the IRS website is saying that my stimulas check can't be processed at this time why is that?

[Jill Langley]

I file taxes every year and filed my 2019 taxes on April 14th. I owed a small amount of money to both federal and state and scheduled a payment for April 15th. I make payment arrangement payments each month on a previous year and pay that every month online. I know the IRS has my bank information and I also receive a SS check each month. I have still not received my stimulus check and on the IRS website cannot get any information about when I might receive it. This has been very frustrating. Please send my money.

[Beth / PA]

I used Turbo Tax to file our 2018 and 2019 tax returns. The issue I am having is that because my husband and I do not have a joint checking account, we have to request a paper check. We have been married for 15 years and this has never been a problem until now. We filed our 2019 tax returns mid February and we still haven't even received our tax refund. When I check the status of our tax return it states that its "still processing", which in turn is holding up our stimulus payment. How can I get this remedied so that we can get some form of money coming in?

[Venessa]

I file with Turbo Tax and the status says that payment was scheduled to be deposited to my back acct as of 4/15/20 however, no fund were deposited. I called my bank and they stated they dont see the transaction on there end. I havent been able to find any info on who to reachout to or how to correct the issue. Does anyone have any info on this issue?

[Pamela L Davis]

On April 25th, the tax preparer charged my mom a $72 fee to give her the stimulus money that was deposited in his account on April 15th. What are her legal rights? When we questioned him about the fee, He stated, "because she didn't file her 2019 taxes with his company." She is 73years old and needed the stimulus check to pay bills. He is charging all his taxpayer fees. What legal rights or laws, charges can be taken?

[Donna Byler]

We filed for 2018 and since we did not get a refund did not leave our bank info.
We do get so sail security deposited in our accounts. When will they start depositing that. Also we moved and our address is different and I can’t locate the tax return for the Get My Payment.
Will they use my social security deposit info

[Darrell Collett]

No check as of today. We used turbo tax but no money from the refund by given by them only our bank account direct deposit was given. We receive refunds and SS retirement with no issues.
My wife and myself both receive Social Security Retirement and have file taxes for both 2018 and 2019 and received our tax refund through direct deposit. We still have not received our stimulus check. I can not understand the confusing and conflicting information that is out there. Some of it says we should have received it while others say we should get it this week. However the status on get my payment on IRS dreaded website says. Payment status not available. Would sure like to know if we should have already received it, if it is coming or we are lost in the system? You have nobody you can contact from IRS to confirm anything that might be wrong or not. What a confusing item this turned out to be.