According to a Treasury Inspector General audit, Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits

Redaction Legend:

1. Tax Return/Return Information

2(f). Risk circumvention of agency Regulations or Statutes



IMPACT ON TAXPAYERS



Many individuals who are not authorized to work in the United States, and thus not eligible to obtain a Social Security Number (SSN) for employment, earn income in the United States. The Internal Revenue Service (IRS) provides such individuals with an Individual Taxpayer Identification Number (ITIN) to facilitate their filing of tax returns. Although the law prohibits aliens residing without authorization in the United States from receiving most Federal public benefits, an increasing number of these individuals are filing tax returns claiming the Additional Child Tax Credit (ACTC), a refundable tax credit intended for working families. 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.



WHAT TIGTA FOUND



Claims for the ACTC by ITIN filers have increased from $924 million in Processing Year 2005 (the calendar year in which the tax return was processed) to $4.2 billion in Processing Year 2010. Clarification to the law is needed to address whether or not refundable tax credits such as the ACTC may be paid to those who are not authorized to work in the United States. *********************2(f)*********************************** Also, employees in the Accounts Management Taxpayer Assurance Program are not taking steps to notify taxpayers when it is obvious their SSNs and names have been compromised.



TIGTA also found that a feature on tax preparation software programs which automatically takes the taxpayer identification number and enters it as the identifying number for the taxpayer’s Wage and Tax Statements ******************2(f)*************************************.



WHAT TIGTA RECOMMENDED



TIGTA recommended that the IRS work with the Department of the Treasury to seek clarification on whether or not refundable tax credits may be paid to individuals who are not authorized to work in the United States. TIGTA also recommended the IRS require individuals filing with ITINs and claiming the ACTC to provide specific verifiable documentation to support that their dependents meet the qualifications for the credit, including residency, and that questionable Child Tax Credit (CTC) and ACTC claims on ITIN returns **********2(f)*******************************. The IRS should also notify taxpayers when their SSNs are compromised and ensure that software packages do not auto-populate an ITIN onto Wage and Tax Statements.



IRS management agreed to discuss with the Department of the Treasury the issue of ITIN filers’ ACTC eligibility. The IRS did not agree to require additional documentation to support CTC and ACTC claims on ITIN returns ********************2(f)*********************************** The IRS is exploring options to alert taxpayers whose SSNs have been compromised and plans to address software that auto-populates an ITIN onto Wage and Tax Statements and take sanctions for noncompliance.



American Recovery and Reinvestment Act of 2009 Made Fraud Easier

Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, On Friday announced plans to examine the refunds.



“The disconcerting findings in this report demand immediate attention and action from Congress and the Obama Administration,” Hatch said in a statement.. “With our debt standing at over $14.5 trillion and counting, it’s outrageous that the IRS is handing out refundable tax credits...to those who aren’t even eligible to work in this country.”



Wage earners who do not have Social Security numbers and are not authorized to work in the United States can use what the IRS calls individual taxpayer identification numbers. Often these result in fraudulent claims on tax returns, auditors found.



Their data showed that 72 percent of returns filed with taxpayer identification numbers claimed the child tax credit.



Changes to tax law are partly to blame for the explosion in refunds for additional child tax credits in recent years, auditors found. Before 2001, filers needed to have three or more children to qualify — and to owe more Social Security taxes than earned income credits.



But those requirements have been eliminated and the allowable refund for each child doubled. The American Recovery and Reinvestment Act of 2009 also made the refund easier to get, auditors found.