A bombshell report by Indianapolis television station WTHR-TV reveals that millions of illegal aliens are getting tax refunds from the Internal Revenue Service (IRS). The scam is an infuriating combination of Orwellian law-making, tax-preparer complicity, IRS impotency, and Congressional gridlock, all of which result in billions of dollars of fraudulent payments being made to individuals claiming to support alleged family members in Mexico.
First, the law. In 1996, the U.S. Treasury introduced the Individual Tax Identification Number (ITIN), a nine-digit tax-processing number assigned by the IRS to individuals who are obligated to file a federal tax return, but lack or are ineligible for a Social Security Number (SSN), typically required to file taxes. Since tax law requires everyone who earns money in the United States to pay taxes – even those who are working here illegally – the ITIN was created to facilitate filing for illegals who can’t get an SSN. No doubt such a law was seen as pragmatic. If an illegal alien was willing to file a tax return, better to have a way for the individual to do it, than lose the revenue. In addition, an ITIN allows U.S. employers to meet withholding requirements.
Yet such a law is the epitome of political expediency. It is essentially an admission that law enforcement officials are powerless to stop illegals from entering the county and obtaining a job – and just as powerless when it comes to cracking down on the companies that hire them. Yet that is hardly the end of the expediency. While requirements for obtaining an ITIN ostensibly include submitting original, official documentation from one’s country of origin to the Austin, Texas, IRS processing center for validation, the IRS is allowing field offices to process the documents. The rationale? Applicants prefer having their documents returned after a brief interview, rather than risk losing them in the mail if they were forced to send them to Austin.
Yet Austin is where the IRS maintains a fraud unit whose document checking is reportedly rigorous. The genesis of the current scam is the fact that document checking becomes far less rigorous when the worker also decides to obtain ITINs for his children, nieces and nephews.
Why is this critical? Enter the Additional Child Tax Credit (ACTC) which is “a refundable credit that can be claimed by taxpayers who are ineligible to claim the full non-refundable child tax credit, because it exceeds their total tax liability. The additional child tax credit was created to reimburse taxpayers for the non-refundable portion of their child tax credit.” In other words, the more legal dependents one can claim, the greater the refund one will receive from the IRS. Legal dependent is defined as a child who has been present in the filer’s household for over half the year.
Enter the scam. “We’ve seen sometimes 10 or 12 dependents, most times nieces and nephews, on these tax forms,” the tax preparer-turned-whistleblower told WTHR News. He then showed the WTHR reporter some examples. “Here’s a return right here: we’ve got a $10,300 refund for nine nieces and nephews,” he said. “We’re getting an $11,000 refund on this tax return. There’s seven nieces and nephews,” he added, pointing to another set of documents. “I can bring out stacks and stacks. It’s just so easy it’s ridiculous.”
The reporter then visited an illegal alien who took part in the scam. He admitted his home was being used by four other “undocumented workers” who don’t live there. Combined they claimed 20 dependent children were living inside one trailer home in Indiana. Their combined tax refund? $29,608. The man also admitted that the 20 children were living in Mexico and hadnever lived in the house. The rationale behind he and the other men taking the ill-gotten gains? “If the opportunity is there and they can give it to them, why not take advantage of it,” he contended.
Unfortunately, he has a point. The same whistleblower reported dozens of cases of fraud to the IRS. “These were fraudulent, 100 percent fraudulent tax returns, but I got no response; absolutely none. We never heard a thing,” he said. “To me, it’s clear the IRS is letting this happen.” A Northern California IRS field-office worker who viewed the report echoed that sentiment. “The fraud has been going on for years,” he told WND. “Business as usual.”
The worker also explained the tax-preparer element of the deception, contending that Spanish language tax-preparers who educate their clients about how much more money they can get back if they increase the number of dependents on their tax forms are “the enablers and catalyst of this fraud.” They get their clients a greater return, which builds good will and repeat business, while taxpayers get soaked. Equally disturbing, word of mouth virtually guarantees even greater abuse next year. Abuse in which WTHR News’ purported whistleblower continues engage himself, and likely explains why he refused to allow himself to be identified on camera. Perhaps whistleblower/fraud facilitator would be a far more accurate description.
U.S. Treasury Secretary General Russell George offered his own take on the issue. “The magnitude of the problem has grown exponentially,” he said, further revealing that his agency has also told the IRS – repeatedly – of the abuse. Audit reports buttress that claim, and one issued in 2011 by the Inspector General (IG) illuminates the trajectory: in 2005, the IRS paid out $924 million on ACTC claims. Currently that number has mushroomed to $4.2 billion per year. The increase is attributable to expansions of the ATCT resulting from both the 2001 Bush tax cuts and The American Recovery and Reinvestment Act of 2009, aka the stimulus package. Prior to 2001, tax filers needed three or more children to qualify for ACTC, along with owing more Social Security taxes than earned income credits. Both of those requirements were eliminated, making refunds much easier to get.
The report also reveals a stunning level of bureaucratic naivete regarding such moves. “The payment of federal funds through this tax benefit appears to provide an additional incentive for aliens to enter, reside, and work in the United States without authorization, which contradicts federal law and policy to remove such incentives,” it reads. Thus, as it is with so many government efforts, the triumph of ill-conceived “good intentions” remains the status quo even as the destructiveness of actual results is revealed.
Unsurprisingly, the IRS disputed the findings. “Any suggestion that the IRS shouldn’t be paying out these credits under current law to ITIN holders is simply incorrect,” IRS spokesperson Michelle Eldridge told The Fiscal Times in a statement. “The IRS administers the law impartially and applies it as written. If the law were changed, the IRS would change its programs accordingly.” According to the Washington Post, the IRS claims they have “no legal authority to demand that filers prove their legal status when the tax agency processes returns.”
Which brings us to Congress and all the attendant immigration politics attached to the issue. After the 2011 IG report was issued, Republicans in Congress attempted to address the problem. Rep. Sam Johnson (R-TX) introduced HR 1956: Refundable Child Tax Credit Eligibility Verification Reform Act. The bill would require individuals to produce a Social Security number in order to claim “the refundable portion of their child tax credit.” As of May 10th, the bill had 60 co-sponsors. A similar provision was put before the House Ways and Means Committee on April 18, where it was approved in 22-12 vote, with every Republican voting in favor, and every Democrat voting against it. Hence, the gridlock part of the equation.
Rep. John Lewis (D-GA) encapsulated the progressive opposition. “The benefits go to the United States citizen children,” he contended. “My God! Listen!…the question must be raised, where is our concern? Where is our compassion? Where is our heart? Where is our soul?” Rep. Bill Pascrell (D-NJ) contended the measure would save only “a very small amount of money” compared with the entire federal budget. Senate Majority Leader Harry Reid (D-NV) piled on as well. “I just think the child tax credit is working just fine and there’s no need to punish children.”
In other words, as long as it’s “for the children” — the majority of whom, despite Mr. Lewis’ erroneous contention, live in Mexico – ripping off taxpayers for $4.2 billion is a reasonable tradeoff.
The IRS is also enchanted by progressive politics regarding the issue. “I think you actually have a lot of people in this country who pay taxes who aren’t here legally,” said IRS Comissioner Douglas Shulman at a National Press Club meeting on April 5th. “[They] file returns so they can show a track record of being good citizens… The people who are being good members of society, the people who do that, obviously, are contributing to the national defense, they’re contributing to our roads, they’re contributing to our schools, and that’s just what we want. And so we try to run the system in a really fair way that allows everybody to pay taxes who needs to pay taxes,” he added. Translation: if you pay taxes, citizenship or lack thereof is irrelevant.
That’s utter nonsense. In 2006, Deputy Social Security Commissioner James Lockhart testified that, in 2003 alone, 8.8 million W-2 forms had been filed with non-matching Social Security Numbers and names. Subsequent investigation by the government could not attribute the W-2 to a known taxpayer. The IRS’s response? They claim the Internal Revenue Code does not allow the Social Security Administration to inform the Department of Homeland Security about employers filing W-2s with non-matching Social Security Numbers and names. In other words, if the IRS doesn’t look for a problem, no problem exists.
More leftist rationale for wholesale law-breaking? “Undocumented immigrants are undoubtedly positive for the fiscal health of this country,” says Leticia Miranda, associate director of the Economic Policy Project at National Council of La Raza, who adds that the fraud is offset by the fact that illegals pay Social Security taxes they can’t collect. 8.8 million “non-matching” SSNs and names in one year alone suggests otherwise. So does identity theft as revealed by the Social Security Administration Actuary. Those estimates show that 75 percent of illegal immigrants obtain and use a fraudulent Social Security number.
Ira Mehlman, a spokesman for the Federation for American Immigration Reform, a group which advocates securing U.S. borders, cuts through the nonsense. “The IRS doesn’t seem to think its job is to make sure people who are claiming these credits are entitled to them,” he says. “The children may or may not be living abroad – or even exist. It’s absurd, almost a joke.”
Unfortunately the joke is on the American taxpayer. And despite the large number of Americans who will be angered by abuse documented here, it is virtually certain that greater public awareness of this issue comes with a price: the more people who know about this scam, the greater the number of people willing to partake in it — enabled by a see-no-evil IRS, feckless congressional Democrats, and a phalanx of open border advocates determined to convince Americans that national sovereignty and xenophobia are interchangeable terms, and that political expediency is a viable substitute for the rule of law.