Federal Court Confirms IRS Unlawfully Withheld Stimulus Relief From Incarcerated People

On October 14, 2020, Chief Judge Phyllis J. Hamilton of the Northern District of California granted in part the Plaintiffs’ motion for summary judgment against the Internal Revenue Service, Department of the Treasury, Treasury Secretary Stephen Mnuchin, and IRS Commissioner Charles Rettig.

In its order, the Court explained that “incarcerated individuals are not excludable as an ‘eligible individual’ under the Act,” and that the IRS therefore acted contrary to law by withholding stimulus relief from them. The Court also held that the government’s “policy of excluding incarcerated individuals from receiving [a CARES Act payment] solely on the basis of their incarcerated status is arbitrary and capricious.” As a result, the Court entered final summary judgment for the Plaintiffs and a nationwide class of people incarcerated in state and federal prisons.

“The Court’s ruling confirms that government agencies cannot rewrite the laws passed by Congress at their whim,” said Yaman Salahi, a partner at Lieff Cabraser and one of the attorneys representing the Class. “It is a blessing for hundreds of thousands of families around the country who are struggling to get by. Their loved ones in prison may be separated from them, but they are not invisible.”

The plaintiffs are also represented by the Equal Justice Society. EJS Legal Director Mona Tawatao commented, “The COVID relief funds will mean that incarcerated people, who are among those in our society most endangered and harmed by COVID, can purchase hygiene products and can pay for the services needed to communicate with their families at a time when fulfilling these most basic of human needs is most critical.”

The Court’s holding converts the preliminary injunction entered on September 24, 2020 into a permanent injunction. As a result, the IRS is required to stop denying stimulus relief to people who are incarcerated solely for that reason, to re-issue payments that were previously retracted from incarcerated people by October 24, 2020, and to re-consider any claim for a refund check that was previously denied by the same date. The government will be required to file a declaration by November 9, 2020 confirming its compliance and including data about the number and amount of stimulus relief disbursed as a result of the order.

Attorneys representing the Class believe that Judge Hamilton’s order makes available $1,200 stimulus checks for up to 1.5 million people believed to be incarcerated in the United States. Based on a Treasury Inspector General for Tax Administration report published earlier this year, this is expected to result in automatic payments to at least 84,000 people totaling $100 million dollars.

Other individuals who did not file 2018 or 2019 tax returns must take affirmative steps to submit claims by mail before October 30, 2020 (or, if filed online, by November 21, 2020) to retrieve stimulus relief before the end of the year. More information about filing those requests can be found at www.caresactprisoncase.org.

The Court denied Plaintiffs’ claim that the government also unlawfully failed to act, but that decision has no effect on the relief awarded to the Class.

Contact: John Gersten, Lieff Cabraser, jgersten@lchb.com or 415 533-3741