Scholl v. Mnuchin

Background

Colin Scholl and Lisa Strawn, who were incarcerated or formerly incarcerated, filed a proposed class action against Steven Mnuchin, Charles Rettig, the U.S. Department of the Treasury, the Internal Revenue Service, and the United States. They asserted claims under the Administrative Procedure Act, the CARES Act, and the Little Tucker Act. They alleged that the Internal Revenue Service denied or recovered economic impact payments from people who otherwise qualified for those payments solely because they were incarcerated.

The CARES Act created an advance refund connected to a tax credit of $1,200 per individual, $2,400 for a joint return, and $500 per qualifying child, subject to the statute’s eligibility rules. The statute defined an “eligible individual” as any individual other than a nonresident alien, a person who could be claimed as another taxpayer’s dependent, or an estate or trust. The Internal Revenue Service initially issued some payments to incarcerated people, but later adopted a policy stating that incarcerated people did not qualify and should return payments already received.

Preliminary injunction

The court rejected defendants’ arguments concerning standing, ripeness, and sovereign immunity. It found that plaintiffs had suffered a concrete financial injury because payments had already been denied, that their claims were ready for review, and that the Administrative Procedure Act waived sovereign immunity for the claims at issue. The court also concluded that a tax-refund procedure was not an adequate alternative because plaintiffs sought prospective injunctive and declaratory relief and that procedure would require substantial delay.

On the merits, the court found that plaintiffs were likely to succeed on their Administrative Procedure Act claim that the policy was contrary to law. The court interpreted the CARES Act as mandating rapid distribution of advance refunds and found no statutory exclusion for incarcerated people who otherwise met the eligibility requirements. The court also found that plaintiffs were likely to succeed on their claim that the policy was arbitrary and capricious because the Internal Revenue Service provided virtually no public explanation for the policy and had adopted shifting interpretations of eligibility. The court did not reach plaintiffs’ separate claim that agency action had been unlawfully withheld or unreasonably delayed.

The court found likely irreparable harm because incarcerated and recently released people were being denied money needed for food, hygiene, communication, and other necessities, and later monetary relief would not adequately remedy that harm. It further found that the balance of equities and the public interest favored an injunction.

Class certification

The court provisionally certified a class under Federal Rule of Civil Procedure 23(b)(2) for purposes of the preliminary injunction. The class consists of United States citizens and legal permanent residents who, from March 27, 2020, to the present, were or are incarcerated in the United States or were held to have violated a federal or state parole or probation condition, and who satisfy specified tax-return, dependency, and Social Security number requirements stated in the order.

The court found that the proposed class satisfied Rule 23’s requirements of numerosity, commonality, typicality, and adequate representation. It appointed Colin Scholl and Lisa Strawn as class representatives and appointed Kelly M. Dermody and Eva J. Paterson as co-lead class counsel.

Disposition

The court’s conclusion states that the motions for a preliminary injunction and class certification were granted. The defendants were enjoined from withholding CARES Act benefits from plaintiffs or class members solely because of incarcerated status. Within 30 days, defendants had to reconsider qualifying advance-payment claims previously withheld, intercepted, or returned for that reason, including claims submitted through the non-filer portal. They also had to update the Internal Revenue Service website and communicate with federal and state correctional facilities. Within 45 days, defendants had to file a declaration confirming implementation and providing data about disbursed benefits. The injunction was to remain in effect until the action was resolved on the merits.