The federal government's decision to pay out billions of dollars in tax credits to illegal immigrants likely was made by midlevel bureaucrats and has never received full congressional scrutiny, according to a study that the Center for Immigration Studies is releasing Monday.
The report, written by CIS fellow David North, says the Internal Revenue Service doled out $4.2 billion in what is known as the "additional child tax credit" in 2010 to those using an individual taxpayer identification number, or ITIN, which is usually a signal of an illegal immigrant.
The issue has been known for some time. But Mr. North went deep into the data to try to look at why it's happening, and said it's a story of a tax credit expanding beyond its initial scope, and midlevel IRS managers twisting the law, leaving billions of dollars going to illegal immigrants.
In particular, he said he can find no evidence that the decision to allow illegal immigrants to collect the tax was made by top leaders at the IRS, and he said it wasn't the intent of Congress.
"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," Mr. North said.
Nobody was answering the phones at the IRS during the government shutdown, which began Oct. 1.
But the agency in the past repeatedly has said it doesn't believe the law allows it to deny illegal immigrants the tax credit, and also disputes that it has the legal authority to deny claims even when they aren't backed up by documents showing that the children actually live in the U.S.
"The IRS does not have the legal authority to deny credits during processing when documentation is not provided," the agency told its inspector general in 2011.
The "additional child tax credit" was created to help out those who make too little to qualify for the full child tax credit. The ACTC is refundable, meaning that even if the taxpayer doesn't owe income tax, he or she could get a payout the IRS.
That becomes an avenue for fraud, particularly when combined with illegal immigrant workers, whose use of the tax credit has jumped from 796,000 filers in 2005 to 1.5 million in 2008 and 2.3 million in 2010, according to the IRS' official auditor.
The IRS has tried to limit how it issues ITINs, hoping to crack down on how much it pays out in fraudulent tax credits. The numbers are now valid for only five years, and require a stricter review of identity documents.
But abuses still abound for existing ITINs, Mr. North argues.
Investigators identified one address in Atlanta where 23,994 ITIN-related tax refunds were sent — including 8,393 refunds deposited to a single bank account. Mr. North said those were pretty good indications of fraud.
He said the IRS should also look for cases where an ITIN filer goes from claiming no dependents to claiming four or five dependents the next year.
Mr. North used an auditor's report to identify a town in Delaware and another on Virginia's Eastern Shore with large concentrations of ITIN filers.
Frankford, Del., had one address where 627 ITINs were registered — despite the town having a population of just 862. Parksley, Va., had a single address with 100 ITINs registered, in a town of 847 residents.
Mr. North visited both towns and found that while Frankford seemed oblivious to the situation, Parksley was different. One tax counselor in town told him she suspected a rival business was responsible for the ITIN applications, he said.
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