Compliance Blog

Ever since the CARES Act passed and credit unions learned their members would be receiving economic impact payments (EIPs), the NAFCU Compliance Team has been getting questions about handling these incoming ACH files and checks. One common question that has come up is whether deceased individuals are eligible for EIPs and what a credit union should do if it receives an EIPs payable to a deceased member. Yesterday afternoon, the IRS provided clarity on this issue.

In the updated EIP FAQs, the IRS explains in question 10 deceased individuals do not qualify for EIPs. The IRS did not provide a bright-line rule regarding the date of death of the individual and instead is relying on the date of payment. If the individual “died before receipt of the payment,” they are not eligible. The IRS further notes EIPs paid to deceased individuals “should be returned to the IRS by following the instructions about repayments.”

The repayment instructions are outlined in question 41. The instructions explain how an individual should return an EIP to the IRS based on where they live. For uncashed checks, the payee should void the check and return it to the IRS. For cashed checks and ACH transactions, the payee should mail a personal check to the IRS.

So, what does this guidance mean for your credit union? The IRS guidance does not place any requirements or obligations on credit unions regarding EIPs paid to deceased individuals. Instead, the guidance is addressed to the individual who received the EIP.

This understanding is consistent with the rules for posting ACH transactions and the fact that the ACH files indicate the payment is a tax refund. As you all might recall from this NAFCU Compliance Blog post, the NACHA Operating Rules permit RDFIs to post ACH transactions based solely on the account number. Since there is no requirement to match names, credit unions are permitted to post ACH transactions to an account with a deceased owner if the account number is still valid. Any instruction for credit unions to return ACH transactions could run afoul of this longstanding NACHA rule, especially in cases where the account number is still valid.

However, nothing in the guidance or NACHA rules prevents a credit union from electing to return an ACH transaction as account holder deceased if its procedures indicate that’s the appropriate course of action based on the circumstances. It will then be up to Treasury and the IRS to sort out the appropriate next steps, especially if the EIP was payable to spouses as question 10 also indicates a surviving spouse is entitled to their share of a joint EIP.

The other issue is the incoming ACH files are identical to tax refund files. Since individuals still have over a month to file their 2019 taxes, Treasury is issuing tax refunds along with EIPs in the ACH files it is sending to credit unions. As a result, credit unions may have no way of knowing whether a particular ACH transaction is a tax refund that is properly payable to a deceased member or an EIP. Rather than risk credit unions returning legitimate tax refund payments, the IRS decided it is the responsibility of the individual receiving the funds to return the payment.

Representatives from the Bureau of the Fiscal Service indicated in an AsktheFed webinar last week, with the understanding forthcoming IRS guidance would instruct individuals to return the funds, that financial institutions should continue posting all EIPs as long as the account number is valid, even if the account owner is deceased. This continues to be their position, as indicated in question 2.6 of their FAQs.

While credit unions are not responsible for preventing EIPs from posting to an account, rejecting properly endorsed EIP checks or otherwise returning payments made to deceased individuals, some credit unions may want to provide information as a member service. Credit unions may find it helpful to direct members to the IRS’s Economic Impact Payment Information Center for more information on how the member can return an EIP.