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The Internal Revenue Service issued Recovery Rebate Credits for the pandemic to nearly 301,000 ineligible taxpayers, many of whom were either immigrants or received an extra payment, according to a new report.
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The report, released Thursday by the Treasury Inspector General for Tax Administration, noted that the American Rescue Plan Act of 2021 authorized a refundable tax credit of up to $1,400 for eligible individuals and directed the IRS to issue advance payments, also known as Economic Impact Payments. The advance payments were to be made as soon as possible but no later than Dec. 31, 2021. Most of the eligible taxpayers have already filed their tax year 2021 tax return claiming the RRC, or they received the credit through an advance EIP.
However, eligible taxpayers who did not receive an EIP or RRC had until April 2025 to claim the credit. At the direction of the Treasury Department, in December 2024, the IRS announced it would begin issuing payments to eligible taxpayers who didn’t claim the RRC on their tax year 2021 tax return or didn’t receive an EIP. In January 2025, the IRS issued 1.2 million payments totaling $2.4 billion to taxpayers who the IRS determined were eligible for the RRC. However, TIGTA found that 300,843 of the RRC payments (that is, 25% of all payments) totaling $447.8 million were issued to ineligible taxpayers..
As of May 2025, TIGTA found that nearly 29,000 of the erroneous payments had already been recovered by other processes or controls, such as voluntary repayment. The IRS plans to use its erroneous refund procedures to recover the rest of the 272,000 erroneous RRC payments.
Since the payments were issued through a one-time batch process, no computer programming changes are needed at this time, according to the report. However, TIGTA said the IRS should consider its concerns if similar types of advanced payments are issued in the future. The IRS plans to issue a letter to the impacted taxpayers asking them to return the payment and also use refund offsets to recover the erroneous payments. That means when a taxpayer files their next individual tax return, the IRS will offset any refund due until the erroneous payment is recovered or the two-year recovery period has ended, whichever occurs first.
In the report, TIGTA recommended the IRS ensure that appropriate steps are taken to recover the erroneous payments. IRS officials agreed with TIGTA’s recommendation and initiated a process to recover the erroneous payments.
The report indicates that many of the erroneous payments went to nonresident aliens who were mistakenly deemed to be eligible, while some taxpayers were inadvertently sent an extra payment.
“When eligible accounts were identified, an oversight in interpreting the eligibility requirements resulted in filers of Form 1040-NR, U.S. Nonresident Alien Income Tax Return, being included in the adjustments file that exaggerated the refund transactions,” wrote Kenneth Corbin, chief of the Taxpayer Services Division at the IRS, in response to the report. “These taxpayers were not eligible for the RRC and should have been excluded from consideration. Additionally, one week of tax year 2021 data had not been loaded to the archives that were used by our research staff to identify eligible taxpayers and calculate the credit due. Consequently, taxpayers who had already received the EIP or the RRC and whose returns were processed during that one week were also erroneously included in the adjustments file.”
