“Angry, resigned, helpless.”
That’s how one Northern California Internal Revenue Service employee described revelations that millions of illegal aliens are claiming and receiving billions of dollars in tax refunds for alleged family members in Mexico using a loophole in the tax code.
Knowledge of the scam has grown following a report by Indianapolis television station, WTHR-TV. The report documented illegal aliens filing the IRS Additional Child Tax Credit form for children – often nieces and nephews – who have never lived in the United States. To legally qualify, a child must be present in the filer’s U.S. residence for over half the year.
“We’ve seen sometimes 10 or 12 dependents, most times nieces and nephews, on these tax forms,” a tax preparer-turned-whistleblower told WTHR News. “The more you put on there, the more you get back.”
“Here’s a return right here: we’ve got a $10,300 refund for nine nieces and nephews.”
“We’re getting an $11,000 refund on this tax return. There’s seven nieces and nephews,” he said, pointing to another set of documents. “I can bring out stacks and stacks. It’s just so easy it’s ridiculous.”
Last year, the Indiana whistleblower reported dozens of cases to the IRS of undocumented workers using phony documents and false income to claim tax credits. Nothing happened.
“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.”
Of course, this problem was not a revelation to the Northern California IRS field-office worker who viewed the report: “The fraud has been going on for years,” he told WND. “Business as usual.”
“As the video indicates the Service does nothing,” he said, asking WND not use his name to avoid reprisal.
As a result, illegal aliens who are defrauding the system not only manage to pay no federal income taxes, their abuse of the credit means they get back everything they paid into Social Security and more.
Ironically, IRS Commissioner Douglas Shulman said said last month paying taxes should be considered one of the pathways to citizenship for illegal aliens.
Based on what comes across his desk, he has seen the problem burgeon in tax returns filed by Spanish-language tax preparers. Calling them “the enablers and catalyst of this fraud,” the Northern California field-office agent noted their clients are more comfortable working with preparers who speak their language. The preparers educate their clients about greater returns they can receive the following year if they qualify family members for the Additional Child Tax Credit refund. It’s a win-win-lose – the client learns how to get more money back from the IRS, the preparer generates good will and repeat business, and the U.S. taxpayers get soaked. Knowledge of the scam then spreads by word of mouth.
While agreeing the Additional Child Tax Credit was a major problem, he said it should not be the primary focus.
“When reviewing the big picture of this fraud, always remember and never forget that it is the ITIN that opens the portal to obtaining the credit,” he said.
The ITIN – or Individual Taxpayer Identification Number – is a nine-digit tax-processing number assigned by the IRS to individuals who are obligated to file a federal tax return but do not have or are not eligible for a Social Security Number. While an ITIN does not confer the right to work in the U.S. to undocumented aliens, it is used by them so U.S. employers can meet withholding requirements.
The requirements for obtaining the ITIN for a worker includes submitting original official documentation from the country of origin to the IRS processing center in Austin, Texas, where there is a fraud unit, for validation. The problem arises when the worker also decides to obtain ITINs for his children, nieces and nephews. At this point, the document checking is far less rigorous.
While the application for dependents’ ITIN can be sent to Austin as well, it is not required. This process can be done across the counter at IRS field offices, and often is, because applicants prefer to have their original documents returned to them after the brief review rather than risk having them lost in the mail.
“Little or no formal training is given to field offices in reviewing Mexican birth certificates,” the California IRS employee told WND. “There’s a lot of variation in Mexico’s official documents. For an ITIN to be issued for dependents, in addition to a birth certificate, original U.S. medical records or letters from school must be presented. Often it is hard to determine if the document is an original or a copy.”
Most Hispanics have two surnames and Hispanic females’ second surname usually changes on marriage, creating a confusing array of family connections to sort through.
“Determining if an individual is actually a nephew or niece at times is difficult. Frankly, I think a lot of these nephews we’re certifying are cousins,” he said.
U.S. tax law allows the claiming of cousins as dependents, but the requirements are stricter than for claiming elderly parents, children, nieces or nephews. The applicant must be responsible for 100 percent of the cousin’s support for the entire year.
“Validating elderly parents as dependents has it’s own problems,” he said. “They could be decedents, we don’t know if they’re still alive. We accept voter ID cards that have expired as proof of the relationship to the applicant.”
While dependent elderly parents don’t qualify for payouts under the Additional Child Tax Credit, they do qualify single illegal aliens to claim Head of Household filing status which conveys significant tax benefits.
Asked if a voter-ID card that had expired in 2004 would be considered an acceptable document to qualify an elderly parent living in Mexico, the California field-office agent answered, “Yes.”
“I do catch some fraud,” he said. “If we see an application for the Additional Child Tax Credit with a stand alone W-7 application for an ITIN, that’s a red flag, and we will usually catch it and go over the rules. But due to time and policy constraints, many applications from the field go forward without further review. Field offices can flag an application for suspense or rejection, but it takes more time and a referral form. The average time to review an application is about seven to nine minutes.”
“If someone already has an ITIN we have no way of determining at our level if they qualify for the credit unless we go through extensive inquiry,” he said. “We don’t know if the claimed dependents who now have ITIN numbers are actually present in the U.S. We are instructed at the field office that we are not the ITIN police.”
As for the IRS, it claims its hands are tied. In a statement to WTHR News, following its exposé, the agency responded:
“The law has been clear for over a decade that eligibility for these credits does not depend on work authorization status or the type of taxpayer identification number used. Any suggestion that the IRS shouldn’t be paying out these credits under current law to ITIN holders is simply incorrect. The IRS administers the law impartially and applies it as it is written. If the law were changed, the IRS would change its programs accordingly.
“The IRS disagrees with TIGTA’s (inspector general) recommendation on requiring additional documentation to verify child-credit claims. As TIGTA acknowledges in this report, the IRS does not currently have the legal authority to verify and disallow the Child Tax Credit and the Additional Child Tax Credit during return processing simply because of the lack of documentation.
“The IRS has procedures in place specifically for the evaluation of questionable credit claims early in the processing stream and prior to issuance of a refund. The IRS continues to work to refine and improve our processes.”