September 1, 2011
TIGTA – 2011-52
TIGTA Report: Unauthorized Workers Received $4.2 Billion in Refundable Tax Credits Last Year
WASHINGTON – Individuals who are not authorized to work in the United States received billions of dollars from the Internal Revenue Service (IRS) last year in a refundable tax credit based on earned income called the Additional Child Tax Credit (ACTC), according to a new study released today.
The study, conducted by the Treasury Inspector General for Tax Administration (TIGTA), found that claims for this credit by these individuals have escalated sharply from $924 million in 2005 to $4.2 billion in 2010.
The IRS issues individual taxpayer identification numbers, or ITINs, to individuals who do not have Social Security Numbers (SSNs) and are not authorized to work in the United States to facilitate their filing of tax returns. But Federal policy is unclear as to whether such individuals are entitled to receive refundable tax credits. Federal law denies such individuals the Earned Income Tax Credit and most Federal public benefits. IRS management’s view is that the law does not provide sufficient legal authority for the IRS to disallow the ACTC to unauthorized workers.
“Clarification is needed on this issue,” said J. Russell George, Treasury Inspector General for Tax Administration. “The Internal Revenue Service should work with the Department of the Treasury to clarify whether this credit, which is based on earned income, should be paid to those who are not authorized to work in the United States.”
TIGTA recommended that the IRS work with the Department of the Treasury to seek clarification on whether or not refundable tax credits may be paid to individuals who are not authorized to work in the United States, and that the IRS require unauthorized workers claiming the ACTC to provide specific verifiable documentation to support that their dependents meet the qualifications for the credit, including residency.
TIGTA also found that documentation associated with returns filed by taxpayers with ITINs sometimes reveals that either the individuals filing the returns have fabricated an SSN or improperly used someone else’s SSN to obtain employment. The IRS generally does not inform the rightful holders of those SSNs that their numbers have been compromised. TIGTA recommended the IRS notify taxpayers when their SSNs are compromised. “It is imperative that the IRS informs U.S. taxpayers that their Social Security Numbers are being used fraudulently,” added George.
In their response to the report, IRS management agreed to discuss with the Department of the Treasury the issue of ITIN filers’ eligibility for the ACTC. IRS officials did not agree to require additional documentation to support ACTC claims on returns filed by unauthorized workers, stating that they do not have the legal authority to verify and disallow these claims during processing; rather, an examination is required.
TIGTA maintains that although the IRS lacks math error authority to deny the claims without an examination, it does have the authority to require documentation to claim a credit and to refer questionable claims to the Examination function during processing.