A Reader Asks: 'I renounced in 2019, but I got a CARES Act payment anyway. What should I do?'

We'll let him explain, and then hear what Marina Hernandez, founder and principal of Crossborder Planner and a U.S. expat tax specialist, has to say about what Franz should do

Now in my sixties, I'm one of those people who only discovered that I was considered to be an American citizen relatively recently, having been born in the U.S. to Swiss parents, who returned to Switzerland not long after I was born there in the 1950s.

As I had no need to remain an American, and because it meant that I could be subject to life-long tax reporting obligations and other potential issues, I formally and uneventfully expatriated in October 2019. 

So you can imagine my surprise when I received a letter from President Trump, dated Nov. 20, last year, and an accompanying "Economic Impact Payment" check of US$1,200. 

What I'd like to know is:

1. Why did I receive these, given that I'm no longer a U.S. citizen?

2. Would I be breaking the law if I were to cash this check?

3. If it would be, am I obliged to send it back? 

Marina Hernandez, who leads the expat tax education initiative of Crossborder Planner, replies: 

When the CARES Act was passed, the goal of the U.S. government was to distribute the so-called Economic Impact Payment checks it provided for as quickly as possible, in order to provide fast relief to millions of Americans. Speed, rather than accuracy, was the priority.

The payments were issued on the basis of individuals' income and tax filing status as it had been reported on their 2019 tax returns, or 2018 tax returns for anyone who hadn't yet filed their 2019 returns by then.

This is why some of these EIP checks ended up in the hands of former U.S, residents, such as you, Franz, and many others who had expatriated in the meantime, but also many non-American citizen researchers who had returned to their home countries; former H1-B visa holders; and even some Americans who had filed tax returns in 2018 or 2019, but subsequently died.

As for whether you would be breaking the law if you were to cash the check you received, it's generally advised that you don't.

As CNBC reported last year,  the IRS was cancelling checks that it had subsequently learned had been issued to deceased Americans, and it is possible that other checks issued in error will also be cancelled.

I believe it is less likely that checks issued to former U.S. citizens have been cancelled as quickly, because the IRS receives information from the State Department with significant delays – usually of at least as long as a year. But if you were eventually found to have cashed a stimulus check you weren't entitled to, there could potentially be problems.

The IRS created a mechanism to return EIP checks issued in error, which is aimed at deceased Americans, but which I suppose could also be used by former citizens like you who have received them, for the same purpose. Information about this is available on the IRS's website by clicking here. 

I do know of at least one former citizen who felt that it was proper to cash the EIP check as a "partial reimbursement for the expatriation fee" paid to the State Department. I'm not aware of the IRS having any mechanism to get that money back, though it is possible that there could be.

Some of the EIPs were made by direct deposit, meanwhile, and in those cases, there isn't even a check to return to Uncle Sam. 

As you will know, a third round of stimulus checks appears likely, once Washington lawmakers agree on the size of the next relief package, so the issue of people getting stimulus checks they shouldn't, and others not getting the ones they are expecting, will no doubt continue.

If you are still waiting for your first or second EIP payments, you have the ability to claim them through your 2020 U.S. tax returns, as of Feb. 12, when the 2020 U.S. tax season opens.

What the IRS says on its website 

Q: What should I do to return an Economic Impact Payment (EIP) that was received as a direct deposit or a paper check? (updated June 9, 2020)

A. You should return the payment as described below.

If the payment was a paper check:

Write "Void" in the endorsement section on the back of the check.

Mail the voided Treasury check immediately to the appropriate IRS location [for your area].

Don't staple, bend, or paper clip the check.

Include a brief explanation stating the reason for returning the check.

If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:

Submit a personal check, money order, etc., immediately to the appropriate IRS location [for your area].

Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (Social Security Number, or individual Taxpayer Identification Number) of the recipient of the check.

Include a brief explanation of the reason for returning the EIP.

(For paper checks, the IRS website at this point lists the mailing addresses to send to, depending on the state in question.) 

Q2 (Added Jan. 6, 2021): How do I return an Economic Impact Payment (EIP) that was received as an EIP Card (debit card) if I don’t want the payment re-issued? 

A: If you received your EIP as a debit card and want to return the money to the IRS and NOT have the payment re-issued, send the card along with a brief explanation stating you don’t want the payment, and do not want the payment re-issued, to:

Money Network Cardholder Services
2900 Westside Parkway
Alpharetta, GA 30004

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"A Reader Asks" is a regular feature of the American Expat Financial News Journal, which helps to put readers with questions together with the answers, in such a way as to help other readers with similar or even identical questions. 

Marina Hernandez, pictured left, is an Enrolled Agent and Certified Financial Planner who is based in the Philadelphia area of Pennsylvania, and who advises clients around the world on their taxes. She also publishes her thoughts on tax issues on The Crossborder Planner, an educational website for U.S. expats and U.S. immigrants, where the content provided is for informational purposes only. 

This article is information of a general nature and does not seek to address the circumstances of any particular individual or entity, beyond the example given. Readers are urged therefore not construe any of the information or other material shared on the site as advice of any nature, be it legal, tax, investment or other.