IRS Refunds $4 Billion Child Tax Credits Per Year to Illegal Immigrants Whose Kids Do Not Live in US (and May Not Exist at All); Earned Income Fraud Another $13 Billion

Here's an interesting video that came my way yesterday from a close friend. The video highlights a news investigation by Channel 13, WTHR in Indianapolis, regarding fraudulent refunds of taxpayer money to illegal immigrants living in the US. The refunds are based on child tax credits, when the kids live in Mexico or elsewhere.



Link if video does not play: Another Massive Tax Loophole!

Typically videos like this are not remotely true, but this one is according to FactCheck.

Q: Does the IRS pay billions in tax refunds to workers who are in the U.S. illegally?

A: Yes. The Treasury Department’s Inspector General determined that $4.2 billion was paid in 2010, up from less than $1 billion in 2005. Leading Democrats are resisting a bill that would stop future payments.

FULL ANSWER

This is a rare case of an Internet rumor with some substance to it. In fact, it’s shaping up as a major dogfight in Congress. At issue here are the federal child tax credits that can be claimed by persons with dependent children under age 17. Some Democrats are already defending these child tax credit payments that have gone to those without a valid Social Security number, accusing Republicans who want to end them of a heartless attack on children.

Several different versions of this viral email all cite a recent investigative story by an Indianapolis television station, but WTHR-TV is far from the first to notice. The Washington Post and others reported on this last year when the Treasury Department’s inspector general for tax administration issued a report on July 7, 2011.

The title of the report summed up the IG’s [Treasury Inspector General] finding: “Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits.”

Problem Still Not Addressed

The WTHR video appears to be from 2012. The treasury inspector general report came out in 2011.

So Congress, the treasury, the IRS, and presumably president Obama have known about this for at least two years.


Fraudulent Bonanza for Illegals

The question I had this morning is a simple one: has anything been done yet?

It does not appear to be the case.

On April 16, 2013, The Washington Times featured an article by Edwin S. Rubenstein Collecting billions in a loophole, subtitled "Fraudulent tax refunds yield a bonanza for illegal immigrants".

As federal services from air-traffic control to White House tours are ratcheted down thanks to the budget sequestration, millions of illegal aliens are now eagerly await billions in illegitimate Treasury payments, courtesy of the Internal Revenue Service (IRS).

Two programs, the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) provide cash payments to low-income parents who pay no income tax and fail to have a valid Social Security number.

The IRS knowingly allows illegal aliens who claim children to get Earned Income Tax Credit cash payments of up to $5,891 per household. This is one reason why these cash payments are expected to exceed $52 billion in fiscal year 2012 alone. The General Accountability Office (GAO) estimates that roughly a quarter of all Earned Income Tax Credit payments are issued improperly.

Compounding the problem is the Additional Child Tax Credit, which was added to the older Child Tax Credit program that became law in 1997. The Child Tax Credit reduces the tax low-income families pay by $1,000 for each child under 17. If the tax filer claims five children for a credit of $5,000 but owes only $2,000 in taxes, under the Additional Child Tax Credit the IRS sends the filer a check for the difference, or $3,000.

The federal tax agency makes no effort to verify the existence of children or the eligibility of the tax-credit recipients to work in the United States. Indeed, IRS managers reportedly encourage their staff to ignore questionable applications and blatant fraud for the sake of fast-tracking Individual Taxpayer Identification Number approvals.

The scandal prompted at least one congressman to act. Last year, Rep. Sam Johnson, Texas Republican, introduced the ITIN Reform Act. The legislation would require people claiming Additional Child Tax Credit refunds on tax returns filed without a Social Security number to verify their citizenship status in person at an IRS office. Currently, the IRS sends these refunds automatically, with no questions asked.

Total Illegal Immigrant Fraud Over $17 Billion Annually

General Accountability Office (GAO) estimates one-fourth of the annual $52 billion in earned income payments is fraudulent. The math here is pretty simple. One-fourth of $52 billion is $13 billion, so the total cost to taxpayers is $17 billion annually.

Democrats do not want to do a damn thing about this, nor does the IRS. Please play the video, it's a real eye opener.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com