The IRS paid out billions in refundable tax credits to undocumented immigrant workers last year, according to a new Treasury audit.
Federal law bars illegal immigrants from collecting tax benefits, like the Earned Income Tax Credit, that can be claimed by residents with Social Security numbers. But the Treasury report found that the tax code’s lack of clarity is allowing the Additional Child Tax Credit (ACTC), which reduces taxes owed by certain individuals with children, to be heavily claimed by undocumented workers;if their tax bills dip below zero, they can collect government checks.
Even wages earned illegally in the U.S. are taxed. Individual Taxpayer Identification Numbers (ITINs) are available to people without Social Security numbers who cannot legally work in the U.S. so they can file tax returns. These ITINs have become increasingly linked to fraudulent tax claims, which helped inflate IRS payouts on the Additional Child Tax Credit from $924 million in 2005 to $4.2 billion, the report said.
“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,” the report said.
The report attributed the massive outpouring of child tax credit refunds to recent expansions of the credit as part of the 2001 Bush tax cuts and the 2009 American Recovery and Reinvestment Act, the legislation that created the stimulus program.
In response to the report, IRS officials said they would follow one of its recommendations to meet with Treasury officials to determine whether people unauthorized to work in the U.S. can collect refundable tax credits. But the IRS rebuffed the audit’s second recommendation that it collect additional documentation from people claiming the ACTC, arguing that the agency lacks the legal authority to challenge such tax returns.
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Federal law bars illegal immigrants from collecting tax benefits, like the Earned Income Tax Credit, that can be claimed by residents with Social Security numbers. But the Treasury report found that the tax code’s lack of clarity is allowing the Additional Child Tax Credit (ACTC), which reduces taxes owed by certain individuals with children, to be heavily claimed by undocumented workers;if their tax bills dip below zero, they can collect government checks.
Even wages earned illegally in the U.S. are taxed. Individual Taxpayer Identification Numbers (ITINs) are available to people without Social Security numbers who cannot legally work in the U.S. so they can file tax returns. These ITINs have become increasingly linked to fraudulent tax claims, which helped inflate IRS payouts on the Additional Child Tax Credit from $924 million in 2005 to $4.2 billion, the report said.
“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,” the report said.
The report attributed the massive outpouring of child tax credit refunds to recent expansions of the credit as part of the 2001 Bush tax cuts and the 2009 American Recovery and Reinvestment Act, the legislation that created the stimulus program.
In response to the report, IRS officials said they would follow one of its recommendations to meet with Treasury officials to determine whether people unauthorized to work in the U.S. can collect refundable tax credits. But the IRS rebuffed the audit’s second recommendation that it collect additional documentation from people claiming the ACTC, arguing that the agency lacks the legal authority to challenge such tax returns.
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