The Canada Revenue Agency issued a rebate cheque for nearly $400,000 to a top Quebec Mafia figure even though he owed the tax department $1.5 million at the time, heightening concerns of possible infiltration of the agency by organized crime.

Details about the payment to former Sicilian mob boss Nicolo Rizzuto were unearthed during a three-year investigation by journalists at Radio-Canada, CBC's French-language sister network, into allegations of corruption at the tax agency's Montreal office, which the RCMP have been probing since 2008.

The $381,737.46 cheque was made out to "Nick Rizzuto" and addressed to his house on Antoine Berthelet Avenue in north-end Montreal, a street known as "Mafia row" because it was home to several major players in the city's Sicilian mob.

The cheque is labelled "income tax refund" and is dated Sept. 13, 2007. Rizzuto was in jail then, having been arrested the year prior and charged with extortion, bookmaking and drug smuggling as part of the biggest police crackdown on the Italian Mafia in Canadian history.

Court records show that at the time, he also owed the tax department $1.55 million, which the Canada Revenue Agency tried to collect by getting a tax lien on his home.

Surveillance footage from a massive police anti-Mafia operation in the early 2000s shows mob boss Nicolo Rizzuto stuffing cash he received from a construction entrepreneur into his socks. (Charbonneau Commission)

The veteran CRA auditor who first discovered the anomaly said he can't understand how a big rebate cheque to someone who had such a huge tax bill — and who was a known Mafia figure — could have gotten past internal controls without inside help.

"That name there was all over the headlines after the arrests. I mean, look, we're not talking about Joe Blow here," Jean-Pierre Paquette, who retired from the revenue agency in 2009, told the Radio-Canada investigative program Enquête.

"There are checks in place. There are approvals that are required during the whole process," he added. "It's left me rather perplexed about the validity of that kind of rebate or that kind of move by the agency."

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Paquette, who spent 35 years with the CRA's anti-organized-crime unit, said after he learned about the cheque, he went to Rizzuto's home to persuade the family to return it. Rizzuto's daughter handed it back to him in the kitchen.

Noël Carisse, assistant director of media relations at CRA, said: "It would be highly irresponsible to suggest that there was anything inappropriate, illicit or nefarious in CRA’s dealings with this specific taxpayer. Any suggestion that CRA did not devote the proper resources or attention to this situation is unequivocally false."

Rizzuto, whose son is former Montreal Mafia godfather Vito Rizzuto, pleaded guilty to gangsterism charges in 2008 and was sentenced to time served. Two years later, he was charged with tax evasion for failing to declare income on $5.2 million in Swiss accounts and again pleaded guilty, paying $209,000 in fines.

He was shot dead at his home by a sniper in November 2010 at the age of 86.

Corruption alleged inside CRA

The cheque to Rizzuto is the latest in a series of troubling revelations about the Canada Revenue Agency's Montreal tax office, which the RCMP began investigating for possible corruption in 2008 at the agency's own request.

Evidence has emerged that some revenue agency officials in Montreal might have received tens of thousands of dollars in cash and other benefits, including a trip to a Montreal Canadiens game, from people and businesses they were auditing.

Watch CBC News will broadcast more details today from the Enquête investigation into allegations of corruption within the Canada Revenue Agency.

There are also allegations some CRA agents tried to extort restaurateurs whose taxes they were assessing.

One of the businessmen alleged to have bribed auditors, Francesco Bruno, is a construction executive with ties to the Rizzutos.

So far, the CRA has fired nine employees. Six of them have been charged by the RCMP with crimes ranging from breach of trust to tax fraud to extortion.

The RCMP says the total amount of taxes avoided through the corrupt schemes could total in the tens of millions of dollars.