Tax filers who were not authorized to work in the U.S. collected $4.2 billion in tax credits in 2010, a Treasury Department watchdog reported.
Although federal law prohibits people residing illegally in the U.S. from receiving most public benefits, an increasing number filed tax returns claiming the additional child tax credit intended for working families, according to the report released today by the Treasury Inspector General for Tax Administration, J. Russell George.
“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 recipients didn’t qualify for Social Security numbers and filed tax returns using individual taxpayer identification numbers supplied by the Internal Revenue Service.
The additional child tax credit was established in 1997, one year after Congress explicitly restricted eligibility for other benefits to taxpayers with Social Security numbers.
Social Security Numbers
The law authorizing the child tax credit didn’t specifically limit recipients to holders of Social Security numbers. The IRS has taken the position that it doesn’t have the authority to deny the benefit to people who file with a taxpayer identification number.
“Clarity is needed on this issue,” George said in a statement accompanying today’s report. “The Internal Revenue Service should work with the Department of 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.”
George recommended that the IRS require additional documentation from unauthorized workers proving that their children meet eligibility requirements for the credit, including residency.
In a reply to George’s report, the IRS said it agreed to discuss the issue of filers’ eligibility for the credit with Treasury. The IRS didn’t agree to require additional documentation from unauthorized workers, saying it doesn’t have authority to do so short of a formal examination process.
Work Authorization Status
In a further statement on the report, IRS spokeswoman Michelle Eldridge said that “the law has been clear for over a decade that eligibility for these credits does not depend on work authorization status or the type of taxpayer identification number used.”
“The IRS administers the law impartially and applies it as it is written,” she said. “If the law were changed, the IRS would change its programs accordingly.”
Even income earned illegally in the U.S. is subject to taxation. Identification numbers are provided so that workers can comply with tax laws even if they don’t have the work authorization necessary for a Social Security number.
The average amount claimed per single return from filers using tax identification numbers in 2010 was about $1,800, according to the report. The total amount of refunds for additional child tax credits processed in 2010 was $28.3 billion.
George also reported that documentation associated with filings by those with taxpayer identification numbers sometimes include fabricated or stolen Social Security numbers.
George urged the IRS to contact taxpayers whose Social Security numbers have been compromised, something it doesn’t now routinely do.
The IRS said it is increasing efforts to combat identity theft. It didn’t commit to a notification policy.
--Editors: Jodi Schneider, Laurie Asseo
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