Angry taxpayers gathered outside a tax return preparer’s office in Georgia after the IRS inadvertently sent their stimulus payments to a third-party bank associated with the company.
Between 60 and 75 people gathered outside Citi Tax Financial in Augusta April 15, on what would normally be tax day, demanding that the owner of the return preparation business give them their federal stimulus checks, according to the Richmond County Sheriff's Office.
In a statement provided to Tax Notes, the sheriff's office said that county deputies "spoke with the owner of the business and he advised that he received an email from his third-party financial backer (Refund Advantage)" informing him that it had received stimulus checks for several Citi Tax Financial clients.
Members of the crowd told the deputies that they learned from the IRS website that their coronavirus relief checks, or economic impact payments (EIPs), had been deposited in unfamiliar bank accounts and they came to the office to find out what was going on.
Citi Tax Financial specializes in refund anticipation loans and checks (RACs), which offer taxpayers upfront loans based on their estimated tax refunds. These third-party loans involve temporary bank accounts created by the return preparer, into which the IRS deposits the tax refunds.
According to an April 16 statement by MetaBank, which houses the Refund Advantage division, the IRS mistakenly sent the payments to the temporary accounts set up for standard tax refunds. “The IRS has not explained to us why this error occurred,” the statement said.
Citi Tax Financial did not return a request for comment by press time. A spokeswoman for MetaBank responded to a request for comment but was unable to provide an answer by press time.
MetaBank told the sheriff's office that it doesn't have the authority to disburse the stimulus payments and will send them back to the IRS to issue paper checks.
An IRS spokesman told Tax Notes April 17 that he was looking into the issue and had no further information at press time.
Return preparation companies in several states — including Texas, Tennessee, and Illinois — have posted on social media accounts that the IRS also mistakenly sent EIPs for some of their clients to the Santa Barbara Tax Preparation Group (TPG), a company that processes tax refund products. TPG is owned by Green Dot Corp., a prepaid debit card company, and processes tax-refund products on behalf of TurboTax and Jackson Hewitt. The company has not publicly issued a release. According to a statement posted on Facebook by one return preparation company, TPG says the IRS didn't identify the payments as EIPs, and that if they were processed instead as federal refunds, fees would be deducted and the taxpayers wouldn't receive the full stimulus amounts.
Green Dot did not respond to a request for comment by press time.
Up to 21 million filers who used services such as H&R Block, TurboTax, and Jackson Hewitt could see their stimulus payments delayed if they received an advance on their tax refunds or had the return preparation fee taken out of their refunds, according to reporting from The Washington Post.
Intuit, the parent company of TurboTax, did not respond to requests for comment.
It’s unclear how the misdirected payments in Georgia occurred and how widespread similar instances have been. In an April 15 blog post, National Taxpayer Advocate Erin Collins wrote that tax returns involving RALs and RACs “carry an electronic indicator” and that “in many cases, these returns also transmit [the taxpayer's] underlying bank account information,” which assists the IRS in ensuring the stimulus money is not delivered to virtual accounts. When the taxpayer’s underlying bank account information is not included, the IRS will send the stimulus check by mail, according to Collins.
In 2008 the IRS opted to send paper checks to individuals with RALs or those who split their refunds between multiple bank accounts.
In testimony submitted for a joint hearing before the House Ways and Means Oversight and Social Security subcommittees in June 2008, Treasury Inspector General for Tax Administration J. Russell George said approximately 9.9 million taxpayers used RALs and 10.3 million used RACs for their tax refunds. Approximately 225,867 taxpayers had split their direct deposit refunds between more than one bank account.
Shortly before the 2008 stimulus checks were to go out, a return preparation firm told the IRS that 450,000 tax returns had been submitted to the IRS without the RAL indicator, and payments were then issued by paper check, according to George. “The media incorrectly reported that these payments were being deposited into RAL accounts,” he said during the hearing.
Nina Olson, then the national taxpayer advocate, remarked during the hearing that the return preparation services knew the use of RALs would delay stimulus checks by at least two months.