On September 24, 2020 U.S. District Court Judge Phyllis Hamilton issued an order certifying a nationwide class of incarcerated individuals as well as granting a preliminary injunction requiring the IRS and Treasury Department to stop withholding stimulus checks solely on the basis of their incarceration status.
Judge Hamilton also required the government to reconsider prior denials of stimulus check applications that were due to the incarceration status of a person within 30 days. To ensure accountability, Hamilton ordered that “within 45 days, defendants [IRS and Treasury] shall file a declaration confirming these steps have been implemented, including data regarding the number and amount of benefits that have been disbursed.”
As of May, 2020, at least 80,000 incarcerated individuals were eligible for economic impact payments of over $100 million, according to a report by the Treasury Department’s Inspector General. These individuals should, therefore, receive a much needed financial infusion in the coming months. Other incarcerated individuals who may not have filed a claim are also eligible now. “The country is suffering during this pandemic and economic crisis, and incarcerated people and the families they rely on for support are no exception,” said Yaman Salahi, a Partner at Lieff, Cabraser, Heimann & Bernstein, who is representing the Plaintiffs and Class. “Judge Hamilton’s order ensures that incarcerated people will receive the sorely needed economic assistance that Congress allocated.”
The case emerged following passage of the CARES Act, which including a mechanism for the IRS to issue economic impact payments (EIP), more commonly referred to as stimulus checks, to eligible Americans. On May 6, 2020 the IRS updated responses to EIP “Frequently Asked Questions” in which it stated that incarcerated individuals do not qualify for stimulus checks. The IRS and Treasury subsequently refused to issue payments to eligible incarcerated individuals. Moreover, the IRS “worked with federal and state prison officials to assist in the return of payments made to incarcerated individuals,” according to a report by the General Accounting Office. As a result, prison systems across the country including Arizona, California, Idaho, Kansas, Mississippi, Montana, Pennsylvania, and Vermont intercepted payments mailed to individuals in state prisons, depriving them of stimulus funds.
Many legal experts questioned the basis for the IRS’ move, arguing that it acted “beyond its authority, perhaps even illegally.” There is no mention of incarcerated individuals in the CARES Act, which some argue makes the IRS position wrong because it “contravenes the clear text” of the Act, according to Patrick Thomas of Notre Dame Law School. Others contended that the IRS didn’t follow its own processes. “It appears that IRS made up this ‘rule’ out of whole cloth and announced it by posting it on a webpage,” noted Stephen Raher of the Prison Policy Initiative.
Furthermore, during the stimulus program in 2009, Congress had explicitly excluded incarcerated people from receiving payments. Therefore, it clearly has the know how to exclude people in prison, but actively chose not to do so in the 2020 Cares Act, many noted. “There is nothing in the CARES Act that gives the IRS authority to decide that incarcerated people are ineligible to receive stimulus checks,” said Senator Sherrod Brown (D-Ohio). “Inmates—who are disproportionately people of color and from low income communities—already suffer from a lack of resources and heightened exposure to COVID-19 due to the failed response to the virus by the prison system. Incarcerated people and their families need more help during this pandemic, not more undue punishment,” he added.
The lawsuit in front of Judge Hamilton challenged the IRS and Treasury Department’s refusal to issue stimulus payments to eligible incarcerated individuals. By granting the preliminary injunction, Hamilton found that the plaintiffs “are likely to succeed on the merits of their’’ claim and that “the statute mandates distribution of the advance refund to eligible individuals.” She noted that “incarcerated persons who otherwise qualify for an advance refund are not excluded as an ‘eligible individual’ and that “the IRS’s decision to exclude incarcerated persons from advance refund payments is likely contrary to law.”
The judge’s orders should bring relief to at least 80,000 incarcerated individuals who stand to receive upwards of $100 million in stimulus check relief. The population eligible for relief may be much higher as the lawsuit alleged that over 1.4 million individuals had been affected by the IRS rule denying payments to incarcerated individuals. “The Treasury Department’s theft of the CARES Act supplements that Congress intended get to people in need right away is not only illegal, but cruel to the people and families most harmed by COVID-19 and over-incarceration — Black, Latinx and Native people and people with lower incomes,” said Mona Tawatao of the Equal Justice Society, an attorney for the plaintiffs. “The court’s order will bring them critical relief and some measure of justice.”
Shahar Ziv .Shahar is the founder of Acing Your Finances (www.acingyourfinances.com), where he helps students and employees develop healthy financial habits.