IRS allowed $4.2 billion in credits to undocumented workers, audit says

Undocumented workers received refundable tax credits totaling $4.2 billion in 2010, a dramatic rise from less than $1 billion in 2005, said a report released Thursday by the Treasury Inspector General for Tax Administration. The Internal Revenue Service, however, said it lacks the authority to disallow claims for the credit and a clarification of oftentimes controversial immigration policy might be needed.

At issue is use of a tax break based on earned income called the additional child tax credit, which taxpayers can claim to reduce their taxes owed, sometimes gaining them a check from Uncle Sam if their tax obligation goes below zero.

Wage earners who are not authorized to work in the United States and lack Social Security numbers can use what IRS calls individual taxpayer identification numbers, which, data show, are associated with a higher proportion of fraudulent claims on tax returns. "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," the report said.

Though undocumented workers are not eligible for federal benefits or the commonly claimed earned income tax credit, federal law is unclear, TIGTA said, on whether such workers who file tax returns qualify for refundable credits such as the additional child credit.

"Clarification is needed on this issue," said J. Russell George, Treasury inspector general for tax administration, saying IRS should work with the Treasury Department to clear up whether this child credit should be paid. The report also said the IRS should begin requiring those claiming the credit to document their eligibility.

IRS managers, in their response to a draft of the report, agreed to take up the issue with Treasury, but disagreed with TIGTA's recommendation on requiring documentation. The revenue agency has no legal authority to demand such documentation during the processing of a tax return, they said. The IRS can only do so during an individualized examination.

The murkiness of the issue reflects a long-standing broader dispute over who is responsible for enforcing immigration law. In the words of a former IRS commissioner quoted by TIGTA, "the IRS' job is to make sure that everyone who earns income within our borders pays the proper amount of taxes, even if they may not be working here legally."

How the agencies might handle the question divides advocacy groups in the larger immigration debate. Jonathan Blazer, staff attorney in the Oakland, Calif., office of the National Immigration Law Center, which defends many low-income immigrants, said, "Our tax system generally doesn't differentiate between citizens or immigrants or immigrants of differing immigration status, and no worker is given a free pass from the obligation to pay tax."

He thinks TIGTA is "one-sided in getting all up in arms because this credit is being claimed by one population." If one considers the context, Blazer said, undocumented immigrants contribute billions of dollars to the Social Security and Medicare trust funds, and even the IRS has documented the billions such workers contribute in overall taxes.

"If Treasury wants to reconsider promotion of tax compliance," he added, it should also consider "the consequences for all taxpayers, the major burden that citizenship inquiries would impose on taxpayers, tax preparers and the IRS."

Ira Mehlman, media director for the Federation for American Immigration Reform, which favors a crackdown on illegal immigration, offered a contrary view. "Treasury thinks IRS does have the authority" to fix the problem, but "IRS management doesn't want to exercise it," he said. "Setting aside fact that we're getting ripped off to the tune of $4.2 billion, there's a seeming lack of concern by agencies that are here to protect us."

Mehlman's group opposes refundable tax credits for workers who are in the country illegally, and he called it "astounding" that TIGTA audit data show 72 percent of tax returns using individual taxpayer identification numbers claimed the child tax credit. "Treasury should be able to call the IRS commissioner in" and tell him not to pay illegal immigrants refundable tax credits, "especially since we're running a deficit," Mehlman said. "If that doesn't work, that's what congressional oversight is for."

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Going Agile:Revolutionizing Federal Digital Services Delivery

    Here’s one indication that times have changed: Harriet Tubman is going to be the next face of the twenty dollar bill. Another sign of change? The way in which the federal government arrived at that decision.

    View
  • Cyber Risk Report: Cybercrime Trends from 2016

    In our first half 2016 cyber trends report, SurfWatch Labs threat intelligence analysts noted one key theme – the interconnected nature of cybercrime – and the second half of the year saw organizations continuing to struggle with that reality. The number of potential cyber threats, the pool of already compromised information, and the ease of finding increasingly sophisticated cybercriminal tools continued to snowball throughout the year.

    View
  • Featured Content from RSA Conference: Dissed by NIST

    Learn more about the latest draft of the U.S. National Institute of Standards and Technology guidance document on authentication and lifecycle management.

    View
  • GBC Issue Brief: The Future of 9-1-1

    A Look Into the Next Generation of Emergency Services

    View
  • GBC Survey Report: Securing the Perimeters

    A candid survey on cybersecurity in state and local governments

    View
  • The New IP: Moving Government Agencies Toward the Network of The Future

    Federal IT managers are looking to modernize legacy network infrastructures that are taxed by growing demands from mobile devices, video, vast amounts of data, and more. This issue brief discusses the federal government network landscape, as well as market, financial force drivers for network modernization.

    View
  • eBook: State & Local Cybersecurity

    CenturyLink is committed to helping state and local governments meet their cybersecurity challenges. Towards that end, CenturyLink commissioned a study from the Government Business Council that looked at the perceptions, attitudes and experiences of state and local leaders around the cybersecurity issue. The results were surprising in a number of ways. Learn more about their findings and the ways in which state and local governments can combat cybersecurity threats with this eBook.

    View

When you download a report, your information may be shared with the underwriters of that document.