IRS discourages employees from detecting fraud

STUDY: Child tax credit payments to illegal aliens over last five years as IRS fails to inform citizens that their Social Security numbers have been stolen

IRS building / AP
August 9, 2012

Child tax credit payments to illegal immigrants have quadrupled in the past five years as a result of President Obama’s stimulus package and the Internal Revenue Service’s refusal to pursue instances of fraud, a new study shows. The IRS is also failing to inform citizens that illegal immigrants have stolen their Social Security Numbers.

The IRS paid out $7.4 billion in tax refunds to illegal immigrants in 2012, quadruple the $1.7 billion paid out in 2007, according to a new report by Senate Republicans. The report was released as Treasury Department Inspector General J. Russell George revealed that the tax agency has allowed tax breaks for illegal immigrants and other areas of fraud to continue under the Obama administration.

"[The Inspector General of Tax Administration] found an environment which discourages employees from detecting fraudulent applications," George told the Washington Times.

The IG studied returns for the 2010 tax year and found that $4.2 billion had been issued to ineligible workers. They have been aided in part by the 2009 stimulus bill, which eased eligibility requirements for the tax breaks. More than 2 million illegal workers claimed the credit in 2010, a 46 percent increase over 2008. The government paid out $4.2 billion to illegal filers, double 2008’s $2.1 billion price tag.

The child tax credit is one of the most popular loopholes to exploit, according to the report.

"[Immigrant] filers are much more likely to claim the [child tax credit] than other individual taxpayers," it stated. "We found that in Processing Year 2010, 72 percent of all [immigrant] filers claimed the [child tax credit], while only 14 percent of non-[immigrant] filers claimed the [child tax credit]."

The credits are also hotbeds for fraud. The IG analyzed 250 potentially fraudulent returns from fiscal year 2009 and found that 91 percent of illegal workers claimed the credit, totaling about $570,000.

The IRS has sought legislation that would block illegal workers from receiving tax credits—a solution the latest IG report reiterated. In May, Senate Majority Leader Harry Reid (D., Nev) blocked a Republican attempt to implement those recommendations.

The cost of tax breaks to illegal immigrants is much higher than the $4.2 billion outlined in the report because the IG focused solely on the child tax credit. The report said the complexity of the tax code and volume of tax returns precluded a more exhaustive approach to analyzing fraudulent returns.

The report also states that citizens have been placed at further risk because the IRS does not notify taxpayers when illegal immigrants have compromised their Social Security numbers. The inspector general’s office during a previous investigation notified the IRS about 45 returns containing stolen Social Security information and asked agents to follow up with the genuine taxpayers.

"The IRS took no steps to inform 30 of the 45 taxpayers previously discussed that their SSNs had been compromised, or to even notate the identity theft on the taxpayers’ accounts," the report found, adding that five of the remaining 15 taxpayers notified the IRS of fraud that the agency already knew about.