GETTING WHAT’S DUE: INCARCERATED INDIVIDUALS AND COVID STIMULUS PAYMENTS

By: Mollie Wagoner, Vol. 105 Staff Member

In the wake of the pandemic, Congress issued two rounds of payments, commonly referred to as stimulus checks, to a large swath of the American public in an attempt to offset the economic struggles caused by COVID. While on its face this seems like a relatively straightforward government program, hiccups with implementation proved otherwise. One significant hold-up is centered around the eligibility of incarcerated individuals. Although there was no specific language excluding them from receiving this benefit, many were denied nonetheless.

When the CARES Act was passed, the mandate was clear, however, additional statutory requirements were read in at the agency level, complicating what should have been a straightforward directive. Congress sought to address this gray area directly through the HEALS Act, however lack of political willpower failed to move that bill forward, causing the bill issuing a second round of payments to advance the same language that was originally misinterpreted in CARES. These complications highlight how misinterpretation at the agency level can fumble the administration of otherwise clear legislation.

I. STIMULUS PAYMENTS AND THE CARES ACT

The first stimulus payment came courtesy of the CARES Act, signed into law March 27, 2020. This was a piece of emergency legislation meant to deal with concerns associated with the global COVID-19 pandemic. The most impactful to the average American was the issuance of Economic Impact Payments (EIP) distributed through the IRS.[1] The legislation codified three exceptions to eligibility for receiving the EIP: excluding (1) non-resident aliens, (2) adult dependents, and (3) estates and trusts.[2] So long as an individual did not fall into one of those three categories, and their income was not above the phase-out level, they were eligible to receive a $1,200 stimulus check.

However, as the rollout began, there was large-scale confusion about the payments.[3] In a bid to dispel common misunderstandings, the IRS began posting FAQs about the payments on their website. One of the FAQs listed incarcerated individuals as ineligible for the EIP, citing the eligibility requirements laid out in the Social Security Act (SSA), which restricted benefits to incarcerated individuals.[4] Nowhere in the CARES Act was there language to suggest incarcerated individuals were ineligible, nor was there any coherent connection to SSA and why those eligibility requirements would be relevant to the issuance of EIPs. However, based on the IRS FAQ pointing to the SSA guidelines and prisoners’ ineligibility, penal institutions began refusing to deliver stimulus checks to inmates that arrived via mail, and threatening disciplinary and federal action against those who had already received them.[5]

In response, inmates brought a class action lawsuit arguing the IRS guidance on incarcerated individuals’ eligibility was unlawful. The IRS’s actions were ruled arbitrary and capricious by the U.S. District Court for the Northern District of California.[6] Following this decision, the IRS began sending forms to prisons for incarcerated individuals to fill out in order to claim their stimulus payments but cabined the push with tight deadlines for the paperwork.[7] In addition to the administrative obstacles, prison advocates have documented several instances of correctional facilities blocking prisoners from accessing the proper paperwork to file for their stimulus checks.[8] This shows that while the legal path is clear, the practicalities of prisoners accessing this benefit is far from a smooth ride.

II. STIMULUS PAYMENTS ROUND TWO

Following the passage of the CARES Act, there were long debates in both chambers on additional legislation to provide further benefits, namely another stimulus payment. Moving into the fall of 2020, many people assumed this would take the form of the Senate HEALS Act. Drafts of this legislation included language that specifically made incarcerated individuals ineligible for a second round of payments, and additionally made incarcerated individuals retroactively ineligible from receiving the first round of payments.[9] However, as time passed, this highly anticipated bill languished in committee with political willpower pulled to different areas of focus. Finally, after much debate on the amount, a second payment was approved by a year-end stimulus bill. The legislation contained no such prohibition on stimulus payments for incarcerated people, as had been suggested in the earlier HEALS Act.[10]

Many people cite this change as a product of strategic policy negotiation by Democrats to include incarcerated individuals.[11] However, the language in the Consolidated Appropriations Act is almost identical to the language in the CARES Act, using the exact same eligibility descriptors for the payment.[12] This suggests less of the strategic negotiations of policy makers in Congress but more so the importance of legislative intent being made clear to actors within the administrative state.

III. THE IMPACT OF AGENCY INTERPRETATION

The confused rollout of payments to incarcerated individuals raises a question of agency discretion and how long of a leash sub-regulatory guidance should truly have. The Treasury Secretary has authority from Congress to prescribe all rules necessary for the enforcement of the IRC, and since the stimulus payments were styled as advance rebates delivered through the tax code, this authority would seemingly apply.[13] Therefore, the IRS has administrative authority to deem how best to animate Congress’ charge of delivering the stimulus checks. But the decision to pull in seemingly unrelated eligibility requirements from the SSA does not to fall under the umbrella of that administrative dictate.

Having tracked the IRS’s response and roll out of the stimulus checks, it is unclear what authority or internal discussions led to the decision that the three very basic eligibility requirements should be read to exclude incarcerated individuals. When asked by reporters why the IRS used language from the SSA to deny prisoners checks, IRS spokesperson Eric Smith said, “I can’t give you the legal basis. All I can tell you is this is the language the Treasury and ourselves [sic] have been using. It’s just the same list as in the Social Security Act.”[14]

In the context of an emergency, such as the pandemic, it is understandable that both Congress and agencies are moving quickly to try and roll out large-scale relief efforts. Mistakes are an inevitable side-effect of human institutions moving fast. However, the IRS reading in additional eligibility requirements, subsequently defending that reading in court, and vowing to appeal the decision, suggests that this is more than a bureaucratic mistake made at the hands of an agency trying to move too quickly. It suggests a commitment to their interpretation. Since the language issuing a second round of stimulus payments does not offer any alternative language to the eligibility requirements first laid out and interpreted by the CARES Act, how the IRS will ultimately respond remains an open question.

What is clear from the class action ruling is if the IRS intends to stick to their interpretation, which reads the SSA requirements into the CARES Act, they will likely need to go through the rule making process of issuing a regulation so that their interpretation is granted Chevron deference.[15] Since the stimulus payments are one-time emergency relief, it would likely be viewed as inefficient to go through the long process of issuing a regulation. By the time the process is complete the payment will have been long overdue. This seems to raise the question that in the context of emergency aid, should there be a faster and more efficient mechanism that offers a check over an administrative agency’s interpretation and implantation of congressional intent? Inmates denied their rightfully owed checks would say yes.

 

[1] CARES Act, H.R. 748, 116th Cong. § 2201(a) (2020).

[2] I.R.C. § 6428(d).

[3] See Heather Long & Michelle Singletary, Glitches prevent $1,200 stimulus checks from reaching millions of Americans, Wash. Post (Apr. 16, 2020), https://www.washingtonpost.com/business/2020/04/16/coronavirus-cares-stimulus-check/ [https://perma.cc/3A87-8ZFV].

[4] Internal Revenue Service, Economic Impact Payment Information Center — Topic A: EIP Eligibility and General Information, Q A14 (added May 6, 2020) https://www.irs.gov/newsroom/economic-impact-payment-information-center-topic-a-eip-eligibility-and-general-information [https://perma.cc/KS5N-DRZW].

[5] Jordan Michael Smith, Prisoners Face ‘Undue Punishment’ as the IRS Claws Back Their Stimulus Checks, The Appeal (Jul 08, 2020), https://theappeal.org/prisoners-stimulus-checks/ [https://perma.cc/6G5Y-WJXL].

[6] Scholl v. Mnuchin, No. 20-cv-05309-PJH, 2020 WL 6065059 (N.D. Cal. Oct. 14, 2020).

[7] Dale Smith, People Who Are in prison Can Get a Stimulus Check, But There’s a Catch. What to Know Today, CNET (Nov. 9, 2020) https://www.cnet.com/personal-finance/people-who-are-in-prison-can-get-a-stimulus-check-but-theres-a-catch-what-to-know-today/ [https://perma.cc/CMF5-BYPL]; Internal Revenue Service, Economic Impact Payment Information Center — Topic A: EIP Eligibility and General Information, Q A17 (updated Oct. 29, 2020) https://www.irs.gov/newsroom/economic-impact-payment-information-center-topic-a-eip-eligibility [https://perma.cc/U2FF-764M].

[8] Keri Blakinger & Joseph Neff, Prisoners Won the Right to Stimulus Checks. Some Prisons are Standing in the Way, The Marshall Project (Oct. 21, 2020) https://www.themarshallproject.org/2020/10/21/prisoners-won-the-right-to-stimulus-checks-some-prisons-are-standing-in-the-way [https://perma.cc/KLZ8-LJF9].

[9] HEALS Act, S. 4318, 116th Cong. § 202(b) (2020).

[10] Consolidated Appropriations Act, 2021 (H.R. 133).

[11] Stephen Raher, Stimulus, Round 2: Incarcerated People Will be Eligible for New Round of Payments, Prison Policy Initiative (Dec. 30, 2020) https://www.prisonpolicy.org/blog/2020/12/30/stimulus-round-2/ [https://perma.cc/ND5K-WAAZ].

[12] Consolidated Appropriations Act, 2021 (H.R. 133).

[13] I.R.C. § 7805(a).

[14] Rebecca Boone, U.S. Inmates Got Virus Relief Checks, and IRS Wants Them Back, PBS News Hour (Jun. 24, 2020) https://www.pbs.org/newshour/economy/u-s-inmates-got-virus-relief-checks-and-irs-wants-them-back [https://perma.cc/X8NC-GM3W].

[15] Scholl v. Mnuchin, No. 20-cv-05309-PJH, 2020 WL 6065059 (N.D. Cal. Oct. 14, 2020).