IRS Changes Course on EIP Processing Error Resolution

The IRS today issued additional instructions in an attempt to remedy the processing error that led to millions of economic impact payments being erroneously sent to accounts that were closed, inactive or temporary accounts. The IRS previously stated that these individuals would not receive their payment via ACH or check and must instead claim the Recovery Rebate Credit when filing their 2020 tax return electronically.

However, in an updated communication today, the IRS said that “if a company is able to identify the final [ultimate bank account], they can move the money to that account and not return it” to the IRS, reversing a previous statement that said that all payments sent to incorrect accounts must be returned. “Therefore, organizations planning to redirect the payment to a known UBA should stop rejecting these payments to the [Bureau of the Fiscal Service]/IRS,” the IRS said. “We are aware there are organizations and tax practitioners that are already migrating the EIP2 to the correct UBA.”

For payments that have already been returned, the IRS said that “it is not viable for a rejected payment to be returned to the organization referring it. As of this point in time, the IRS has no plans to reissue any EIP2 payments.” Taxpayers who do not receive the EIPs for which they are eligible should request the rebate credit on their 2020 tax return.