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Glitch?: IRS Funnels Billions to Illegal Aliens

Posted By Arnold Ahlert On October 15, 2013 @ 12:49 am In Daily Mailer,FrontPage | 8 Comments

While many conservative organizations seeking tax exempt status were singled out for extra scrutiny by the IRS, a commensurate level of calculated disinterest was demonstrated with regard to illegal aliens. A bombshell report, “Paying Illegals to Stay” written by Center for Immigration Studies (CIS) fellow David North reveals that the Treasury has paid out a whopping $4.2 billion to the families of illegal aliens.

“This particular paying-the-illegals-to-stay pattern revolves around the Additional Child Tax Credit (ACTC), which is not so much a tax credit as it is an income-transfer program for low-income families, offering up to $1,000 per child to all resident families, including those of illegal aliens,” North explains.

Unsurprisingly, the evolution of the abuse came about courtesy of what North refers to as a “fuzzy minded” Congress, which could have mandated that ACTC benefits, like Earned Income Tax Credits (EITC), could only be granted to people with valid Social Security Numbers (SSNs).

Instead, in 1996, as part of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), Congress determined that no federal “grant or benefit” could be given to illegals–even as they failed to define the terms. Subsequently, the decision as to what those terms meant became one for the executive branch of government (in this case the IRS) to make.

At some point the IRS decided completely on its own, “at a modest level of the IRS hierarchy,” according to North, that giving ATCTs to illegals was not a problem. “I’ve been in government and I know kind of how these things work out. It struck me that [GS-]15s, 16s, got together at some point and decided this is how we should handle it, and it stuck,” North told the Washington Times. 

As a result, 1996 was the same year the U.S. Treasury introduced the Individual Tax Identification Number (ITIN). This nine-digit tax-processing number is assigned by the IRS to individuals who are obligated to file a federal tax return, but who lack or are ineligible for a SSN typically required to file taxes.

ITIN numbers can only be issued to those who submit a Form W-7, along with documents that establish both the identity and the foreign status of the individual. Prior to their validation, those documents were supposed to be reviewed at the IRS processing center in Austin, TX, where they have a fraud unit. Yet the IRS allowed other service centers with far less rigorous standards to process the documents. Moreover, standards become even less rigorous when an applicant decides to obtain ITINs for his children, nieces and nephews. And as North reveals, once an ITIN “has been issued, there seems to be little, if any, attempt to question the filer’s eligibility for ACTC benefits, so the refunds keep flowing.”

They might have kept flowing indefinitely were it not for the outstanding efforts of Bob Segall, a senior investigative reporter for WTHR-TV in Indianapolis. Running his first report on the scam on April 26, 2012, Segall related the story told to him by an anonymous Indiana tax consultant. The consultant revealed that several returns filed by illegal aliens were successfully claiming ACTC tax refunds of as much as $1000 for as many as a dozen dependents. “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.”

Segall tracked down a single illegal alien living at a southern Indiana home used by four more illegals who didn’t live there. Despite that reality, those workers claimed 20 children as dependents–and the IRS sent them checks totaling $29,608.

After that, the dam broke at the Austin servicing center, where workers told Segall that management was interested in the quantity, not the quality, of returns processed. The processing of documents written in foreign languages, and the IRS’s willingness to accept notarized photocopies of original documents also facilitated the fraud.

North notes the other hero of this story is Treasury Inspector General (IG) J. Russell George. “The magnitude of the problem has grown exponentially,” George said at the time, and issued audit reports to back up his statement. The 2011 report revealed the upward trend: in 2005, the IRS paid out $924 million on ACTC claims. In 2010, illegal aliens collected $4.2 billion, more than quadruple the previous amount. The report also revealed that the number of illegal aliens who used the tax credit skyrocketed from 796,000 filers in 2005, to 1.5 million in 2008, and 2.3 million in 2010. For perspective sake, the report explained that 72 percent of tax returns filed using ITINs sought the child tax credit, compared to only 14 percent of non-ITIN filers seeking the same credit.

With the spotlight trained on them, the IRS made some changes to the system: only original comment and certified copies by the issuing authority can be used to process ITIN applications; ITIN numbers will expire after five years; quality not quantity is now emphasized at processing centers; and new review procedures have been instituted.

North notes these changes produced concrete results, with both an increase in the number of rejections, as well as a decrease in the total number of applications sent to the IRS.

Unfortunately, the remedy is a half-hearted solution at best. In typical bureaucratic fashion, the IRS reforms only addressed the problems moving forward. Those already scamming the system–and continuing to do so–will be unaffected.

North notes the IRS could at least go after “low-hanging fruit,” and the examples of such are mind-boggling. He reveals that a single address in Atlanta, GA had 23,994 ITIN-related tax refunds sent to it. In another instance, 8,393 ITIN refunds were deposited into a single bank account. He further notes the IG’s report revealed that three towns “all small ones in labor-intensive agricultural areas,” had a highly disproportionate number of ITIN application relative to the general population.

In Thermal, CA, there were 67 assigned ITINs that received $402,000 in refunds, mailed to 95 addresses, in a town with a total population of 2,825. In Parksley, VA, 100 assigned ITINs received $163,711 in refunds mailed to 48 addresses in a town of 847. In Frankford, DE, 627 assigned ITINs received a total of $712,004 in refunds mailed to 183 addresses–in a town of only 862 people.

North personally visited Frankford and Parksley. Frankford officials demonstrated no awareness of the problem, or any interest in dealing with it. In Parksley, the woman running a one-woman post office operation told North he was not the first person to ask about the problem, but wouldn’t tell him who else did. Of the three tax preparers listed in the White Pages, one was aware of the problem, but blamed it on one of the other two.

North summed up his experience. “What I found, briefly, was this: that some unknown segment of the government (probably either the IRS or the postal inspectors) was active in one location, but apparently not in the other; that the IG’s office had not made any obvious effort to share its (partially redacted) story with local authorities; and that while people were polite to me and mildly interested in my story, there did not seem to be any deep, underlying concern about the presence of illegal aliens in their midst.”

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.” It died on May 24, 2011.

Meanwhile, the IRS continues to maintain that it does not have the authority to prevent illegal aliens from getting fraudulent tax refunds. It further contends it lacks the legal authority to deny claims, even when they fail to include documents showing the children actually live in the United States. That would be the same IRS whose scrutiny of conservative organizations seeking tax exempt status was meticulous at best, and illegal at worst. It is precisely those warped priorities that have many Americans wondering if the agency should be abolished altogether. When the IRS is “paying illegals to stay,” it might be an idea whose time has come.

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