According to a Treasury Inspector General audit, Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits

Redaction Legend:
1. Tax Return/Return Information
2(f). Risk circumvention of agency Regulations or Statutes

IMPACT ON TAXPAYERS

Many individuals who are not authorized to work in the United States, and thus not eligible to obtain a Social Security Number (SSN) for employment, earn income in the United States. The Internal Revenue Service (IRS) provides such individuals with an Individual Taxpayer Identification Number (ITIN) to facilitate their filing of tax returns. Although the law prohibits aliens residing without authorization in the United States from receiving most Federal public benefits, an increasing number of these individuals are filing tax returns claiming the Additional Child Tax Credit (ACTC), a refundable tax credit intended for working families. 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.

WHAT TIGTA FOUND

Claims for the ACTC by ITIN filers have increased from $924 million in Processing Year 2005 (the calendar year in which the tax return was processed) to $4.2 billion in Processing Year 2010. Clarification to the law is needed to address whether or not refundable tax credits such as the ACTC may be paid to those who are not authorized to work in the United States. *********************2(f)*********************************** Also, employees in the Accounts Management Taxpayer Assurance Program are not taking steps to notify taxpayers when it is obvious their SSNs and names have been compromised.

TIGTA also found that a feature on tax preparation software programs which automatically takes the taxpayer identification number and enters it as the identifying number for the taxpayer’s Wage and Tax Statements ******************2(f)*************************************.

WHAT TIGTA RECOMMENDED

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. TIGTA also recommended the IRS require individuals filing with ITINs and claiming the ACTC to provide specific verifiable documentation to support that their dependents meet the qualifications for the credit, including residency, and that questionable Child Tax Credit (CTC) and ACTC claims on ITIN