How to deal with the advance recovery (stimulus) rebate process

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Grant Thornton's National Tax Office has received a number of inquiries concerning how to best deal with the advance recovery (stimulus) rebate process. The following summarizes our current understanding of the situation and is based on both public pronouncements and informal discussions with IRS and other government officials.

Getting the rebate as soon as possible

The IRS will begin issuing advance rebate payments this May and will continue to issue them through the end of the year. Although there is little the taxpayer can do to affect the size of the stimulus rebate payment, taxpayers can take steps to make sure they receive it as soon as possible. The taxpayer's goal should be to make it as easy as possible for the IRS to send them their payment as soon as possible.

This IRS is planning to use the taxpayer's 2007 tax return to calculate the rebate payment. Steps that make it easier for the IRS to process the payment sooner include the following:

  • File as soon as you can – The IRS won't calculate and process the rebate until it has the return. The earlier the return is filed, the sooner the IRS can get to your rebate.
  • Avoid extensions if you can – Returns filed on extension are likely to have to wait in line behind those that are filed on time. If you can avoid extending, do so.
  • Make it easier on your preparer, too – If you use a tax preparer, make sure the preparer receives your complete information as soon as possible, so as not to delay the preparation of your return.
  • Make sure your return is correct – If you file an erroneous return, you may lose your place in line while the return is corrected and you confirm the corrections. In particular, be careful with items that are central to the computation and processing of the rebate payment, such as social security numbers.
  • File electronically – It is easier for the IRS to process an electronic return. The IRS has adopted a special procedure (Rev. Proc. 2008-21) to allow individuals who qualify for rebates, but who do not have adjusted gross income (AGI), to report $1.00 of AGI in order to activate the electronic return process.
  • Provide direct deposit information – If you use direct deposit for your income tax refund, the IRS will directly deposit the rebate payment into the same account. This can accelerate the receipt of the payment. Make sure that the account is valid, and that it remains open and available to receive the rebate payment.
  • Do not ask for a split deposit of your income tax refund – The IRS can only handle one account per rebate payment. If you ask for the direct deposit of your income tax refund to be split among several accounts, the IRS will not be able to directly deposit your rebate and will have to send you a check.
  • Let the IRS know where to find you – If you move, make sure you file Form 8852 with the IRS to let them know where to find you. If they issue your rebate as a paper check for any reason, make sure they know where to send it.

What exactly is an advance recovery rebate payment, and will it affect my taxes in another year?

The "advance recovery rebate payment" is the term for the payment the IRS will make to eligible taxpayers in 2008. The word “rebate” does not accurately describe it and has led to unnecessary confusion.

The payment is a special credit that is expected to be paid outside of the normal calculation of income tax. It does not reduce the amount of refund a taxpayer is otherwise eligible for, cannot be counted as a payment of estimated taxes, and will not be treated as taxable income in any year.

Although payment of the advance stimulus rebate will make use of information from the taxpayer's return, it is best understood as a separate process.

The payment is structured as an advance payment to allow taxpayers who qualify for a larger payment using the numbers on their 2008 return to collect the difference in 2009. Taxpayers who would qualify for a smaller payment using the numbers from their 2008 return are not required to return the difference.

The 2008 return process may be used by the IRS to correct any errors in the issuance of the payments and to allow taxpayers to claim additional amounts to which they are due. However, final guidance in this area has not been issued.

Is there any reason not to participate in the advance recovery rebate payment process?


AccountingWEB would like to thank Grant Thornton LLP for providing this information.

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