IRS falls behind on refunds for dead taxpayers

Between January 2021 and July 2024, the IRS processed nearly 610,000 manual refunds for deceased taxpayers, according to a recent report, but in many cases took over a year to process them.

The report, released earlier this month by the Treasury Inspector General for Tax Administration, comes at a time when Elon Musk and President Trump have been questioning billions of dollars in Social Security payments that are supposedly being sent to millions of long deceased centenarians, although the claims have been debunked by fact checkers. It's not uncommon for the IRS to process tax returns for estates and recent decedents or for the Social Security Administration to have dead people still listed in its extensive database. The TIGTA report noted that a deceased taxpayer may be owed a tax refund from the IRS, for example, if they die before receiving a refund on a tax return they filed or if a tax return is filed on behalf of the deceased taxpayer.

"Often a taxpayer's surviving spouse, estate executor, or beneficiary files the tax return," said the report. "In some cases, the IRS must issue the refund manually instead of systemically."

The average processing time for those refunds was 444 days. The refunds included over $237 million in interest paid. 

That doesn't mean the IRS hasn't made mistakes in its handling of such refunds. TIGTA estimated that the IRS miscalculated the interest for over 47,500 claimants, resulting in the claimant receiving either too much or too little interest.

The report noted that the IRS is developing programming to either eliminate or significantly reduce the need for manual refunds for those who claim a deceased taxpayer's refund beginning in the 2025 filing season. That programming may come under threat from budget and staffing cutbacks at the IRS that have prompted the agency to pause its technology modernization efforts, but it's expected to be implemented in April. 

TIGTA also found the IRS has inadequate controls in place to verify that the interest calculated for manual refunds is accurate. From January 2021 through July 2024, the IRS issued 609,953 manual refunds associated with deceased taxpayers that included more than $237 million in interest. The report found the IRS miscalculated the interest paid to claimants in 12 out of a sample of 91 manual refunds issued (or 13%). TIGTA estimated that 47,542 claimants may have been affected by erroneous interest calculations and received either too much or too little interest owed. There's a potential for human error in the manual refund process as it requires employees to manually enter the numbers on which interest is to be calculated. 

TIGTA made six recommendations to the IRS's chief of taxpayer services to improve the processing of manual refunds associated with deceased taxpayers. Its recommendations included coordinating with the appropriate IRS offices and senior officials to expedite the approval, funding and implementation of a programming request to reduce the need for manual refunds. TIGTA also suggested the IRS should ensure the programming request has appropriate controls to accurately calculate interest owed to survivors or claimants; and provide additional guidance to IRS employees on deceased refunds to establish consistency in the processing of a survivor's claims. The IRS agreed with all six of TIGTA's recommendations. 

"Programming is expected to be implemented in April 2025 that will permit employees processing these refund claims to update accounts with the additional information identifying the representative of the decedent releasing the refund for systemic payment," wrote Kenneth Corbin, chief of the IRS's Taxpayer Services Division, in response to the report. "When this occurs, interest will be systematically calculated without employee action."