The Crazy (True) Story of Vanishing Stimulus Money

Have you been paying attention to the stimulus fiasco?  The story is truly astounding.

As with the first stimulus payment, the IRS is tasked with the distribution of $600 to every eligible citizen in the US. Again, as with the first payment, the IRS decided it prudent to deposit the payment into the bank accounts they have on file for issuing tax refunds. But this time around, there was a fatal flaw:

The majority of tax preparation firms offer a product known as a “Refund Transfer” (RT). The purpose of an RT is to allow their clients to pay for their tax preparation fees using funds withheld from their tax refund. All firms follow a similar process to do this. The process is as follows:

The tax preparation firm partners with a 3rd party bank that acts as an intermediary between the IRS, the client, and the firm. The 3rd party bank opens a temporary account in the name of the client, and that account and routing number are given to the IRS. The IRS deposits the client’s tax refund into the 3rd party bank account, and the bank then transfers the tax prep fees to the firm, and makes the rest of the refund (minus a bank fee) available to the client. The client has the choice to have their refund distributed to them as a direct deposit, check, or a pre-paid debit card.

This was not an issue for the first round of stimulus payments, because they happened just after the peak of tax season, when the majority of Americans had filed their taxes and were still waiting on their refunds.

The major flaw in the plan is: all of these temporary RT accounts are closed out — by law — at the conclusion of tax season in October. The IRS did not take this fact into account, and proceeded to distribute stimulus payments to over 13 million closed bank accounts.

To make matters worse, the IRS did not consult with any of the tax preparation firms, so the entire industry has been blindsided by this situation days before their busiest 3 weeks of the year.

The IRS’s solution? Those that have not received their stimulus payment by January 15 will have the opportunity to have it included in their tax refund. Also by IRS regulation, any tax refund that includes a refundable tax credit (ie: the majority of low-income taxpayers who need the stimulus the most) are to be held until at least Feb 15 in order to combat fraud. And a large amount of those refunds aren’t paid out until mid-March.

In their haste to distribute help to low-income taxpayers, the IRS has delayed the payment for up to 3 months, and threw the entire tax preparation industry into a tail-spin on the eve of their busiest time of the year.

If this weren’t so devastating to those who need the money the most, the incompetencies here would likely be far more comical.



About Mike Glenn

Mike is the founder and publisher of Save Newport and Chair of Government Relations for the Elks Lodge. He writes, shoots photos, and edits, but much of the time, he's just "the IT guy". He can be reached at: Google+, Facebook, or via email, at