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Overseas Bank Helped Recover IRS Stimulus Checks To Non-Americans. It Didn't Go Well

Dozens of people in Micronesia are suing the Bank of Guam for seizing stimulus checks they deposited. The bank did so to help the IRS recover tax payments issued in error.
Dozens of people in Micronesia are suing the Bank of Guam for seizing stimulus checks they deposited. The bank did so to help the IRS recover tax payments issued in error.

When Congress rushed to flood the U.S. economy with stimulus money during the pandemic, it prioritized speed over accuracy. That decision resulted in the U.S. Treasury mistakenly sending more than a billion dollars in economic impact payments to dead people and to citizens of other countries who are not eligible for the money.

Now, the IRS is trying to get back some of those stimulus checks, creating legal mayhem overseas — even as it repeats the mistake that caused the problem.

In the Western Pacific Ocean islands of Micronesia, dozens of customers have sued the Bank of Guam, saying it illegally seized stimulus deposits totaling more than $400,000, and in some cases returned them to the IRS.

One of those customers is Craig Reffner, a lawyer who moved from the United States to Micronesia about 25 years ago but has kept his U.S. citizenship and files U.S. taxes, which made him eligible for the stimulus money.

When Reffner's first check, for $1,200, arrived in the spring of 2020, he deposited it in his account at the Bank of Guam. When his second check, for $600, arrived earlier this year, he did the same thing — but the bank put a hold on the payment.

"That night I was online and I looked at my account and I noticed that it had a huge negative transaction," Reffner recalled, "and I was like, 'What in the world could have happened?' "

What happened is that the Bank of Guam received a letter from the U.S. Treasury asking for help recovering tax payments the IRS had issued in error. The bank eventually gave Reffner and others back their money, but some customers never saw their stimulus checks again because the bank sent the payments back to the IRS.

Cody Spence, another Bank of Guam customer in Micronesia who is eligible for the money, said when his first check arrived, the bank asked to see his passport before releasing it. And he said that, last month, two Micronesian police officers arrived at his workplace and questioned him about the stimulus money he and his family received — three rounds totaling more than $7,000.

Those experiences made him feel "uncomfortable," said Spence, a U.S. citizen and U.S military veteran, "considering it was a foreign government questioning me on how I received my money from my government."

Reffner told NPR that the Bank of Guam asked some customers for copies of their tax returns to determine whether they were eligible for stimulus and began seizing any type of payment issued by the U.S. Treasury, including Social Security checks and veterans benefits. One Micronesian citizen, Dion Bernard Asher, told NPR the bank temporarily withheld a $1,200 paycheck she received for having provided translation services to the U.S. Justice Department.

The Bank of Guam said it would not comment on the Micronesia lawsuits because the matter is in litigation. But in court records and emails reviewed by NPR, bank officials said some customers received stimulus they weren't eligible for and the bank is required by U.S. law to return the money. The bank's customers argue the IRS has no legal jurisdiction over the bank.

Enda Kelleher, a vice president at Sprintax, which does U.S. tax preparation for nonresidents, said it isn't the role or expertise of an overseas bank to determine whether economic impact payments were issued correctly.

"Hats off to the Bank of Guam if they can suddenly retrain all of their team to be nonresident tax experts, but I don't think that that is the business that they're in," said Kelleher. "And I don't think it would be appropriate for them to be going through individuals' tax returns and establishing residency and establishing treaty eligibility and establishing eligibility for the stimulus check."

He added: "They need to be very, very careful before taking that route."

Only U.S. citizens and U.S. "resident aliens" are eligible for stimulus money. The term "resident alien" is a federal tax classification, and to qualify, an individual needs a green card or must have been in the U.S. for a certain amount of time.

But the IRS has acknowledged it mistakenly sent checks to many noncitizens who were not eligible. That includes non-Americans who receive Social Security and other federal benefits but who don't qualify for stimulus because they are not citizens or "resident aliens."

The IRS has also acknowledged sending stimulus money in error to many foreign guest workers who, whether unintentionally or on purpose, filed an incorrect type of tax return that made them appear to be U.S. residents.

Kelleher said his company has thousands of clients from about 150 countries who received stimulus checks in error and are now trying to return the money to the IRS. For most of them, that requires filing an amended tax return.

An increasing number of clients filing amended returns — at Sprintax, 20 times more than in a typical year — indicates that misdirected stimulus money "continues to be a problem and continues to create confusion," Kelleher said.

In the meantime, the IRS is still repeating the error that led to the lawsuits in Micronesia.

Susanne Wigforss is a Swedish citizen living in Stockholm who has received two rounds of stimulus totaling $1,800 even though she is not eligible for it, and she recently got a letter from the U.S. Treasury notifying her that a third round is coming, for $1,400.

Wigforss worked in California years ago, which makes her eligible for Social Security but not for the stimulus money. Her first two checks were signed by Donald Trump, and after the media reported the mistake, she assumed the IRS would correct the problem — until she got her third notification.

"When the mail came and I saw there was a letter from [the] IRS, I said out loud, 'They couldn't possibly do this again!'" Wigforss recalled. "But when I opened the letter, there it was, signed by Joseph Biden, White House, that another check is on the way. I was stunned."

For Craig Reffner, the U.S. citizen in Micronesia whose stimulus check was withheld for weeks by the Bank of Guam, it's absurd that the United States keeps issuing stimulus in error while simultaneously trying to recover stimulus it issued in error.

"I don't understand why President Biden would even allow the IRS to continue operating, making mistake after mistake after mistake," he said. "I mean, that's just a ridiculous way to operate."

An IRS spokeswoman, Sarah Maxwell, said she wasn't aware of the Bank of Guam lawsuits or the IRS letter asking the bank for help, and she did not say how many other banks may have received a similar letter.

But she said the IRS works with financial institutions around the world to investigate suspicious tax activities, and the IRS continues to ask people who mistakenly received stimulus checks to voluntarily return them.

Copyright 2021 NPR. To see more, visit https://www.npr.org.