A two-part News 13 WTHR Indianapolis report uncovered a tax loophole involving undocumented workers that costs taxpayers over $4.2 billion a year. What’s worse is that the IRS has known about the problem for years.
Russell George, the U.S. Department of Treasury’s Inspector General for Tax Administration said that the IRS has known about the problem for years and that “the magnitude of the problem has grown exponentially.”
Undocumented workers have been taking advantage of a loophole called the Additional Child Tax Credit, a fully-refundable credit of up to $1,000 per child that was intended to help working families with children living at home. Not only are they claiming children within the U.S., they are also claiming children in Mexico.
How does this happen? All Americans, whether legal or illegal, who earn income are required by law to file taxes, but doing so requires having a social security number which illegal immigrants aren’t supposed to have. The IRS remedied this by created the individual taxpayer identification number. This well-intentioned remedy has backfired, however, and is costing taxpayers billions of dollars a year.
The inspector general George has repeatedly warned the IRS about these abuses, releasing a report last July showing that the problem had ballooned to $4.2 billion per year.
“Keep in mind, we’re talking $4 billion per year,” George told WTHR. “It’s very troubling.”
The IRS has yet to take any actions to correct the loophole despite the inspector general’s warnings.
“Millions of people are seeking this tax credit who, we believe, are not entitled to it,” he said. “We have made recommendations to [IRS] as to how they could address this, and they have not taken sufficient action in our view to solve the problem.”
The whistleblower, a tax preparer who brought the case to the attention of WTHR, said he has thousands of examples of illegal immigrants claiming credits for children residing in Mexico, including children labeled as nieces and nephews on their filings.
“We’ve seen sometimes 10 or 12 dependents, most times nieces and nephews, on these tax forms,” the whistleblower said. “The more you put on there, the more you get back.”
He also got no response from the IRS when he tried to report completely fraudulent returns using fake income and documents.
“These were fraudulent, 100 percent fraudulent tax returns, but I got no response; absolutely none. We never heard a thing,” the whistleblower told WTHR. “To me, it’s clear the IRS is letting this happen.”
WTHR also interviewed undocumented workers who told them how easy it was to take advantage of the credit. One worker interviewed said his address was used by four other documented workers who don’t even live there. The four claimed 20 children and got tax returns totaling $29,608. Only one little girl was observed at the residence, the twenty other children live in Mexico and have never even visited the U.S.
“They don’t live here,” said the undocumented worker. “The other kids are in their country of origin, which is Mexico.”