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Report: Tax Loophole Pays Out Billions in Tax Credits to Illegal Aliens


"We're talking about a multi-billion dollar fraud scheme here that's taking place and no one is talking about it."

A fallen barbed wire fence is the only barrier between Mexico and the United States as illegal migrants cross near the town of Sasabe, state of Sonora, Mexico in this file photo taken Thursday, April 1, 2004. U.S. Border Patrol officials are seeing a significant increase in the number of illegal immigrants being smuggled through what's known as the Sasabe corridor southwest of Tucson. (AP Photo/Guillermo Arias, File) Original Filename: BUSY_CORRIDOR_LA501.jpg

Billions of dollars in tax credits are being paid out to illegal immigrants because of a certain "undocumented worker" tax loophole, Indiana’s WTHR-TV reports.

And, of course, it’s all happening at the expense of the taxpayer.

"There is not a doubt in my mind there's huge fraud taking place here," a whistleblower told Eyewitness News on condition of anonymity, "We're talking about a multi-billion dollar fraud scheme here that's taking place and no one is talking about it."

So how does the alleged fraud work? It’s a little convoluted but reporter Bob Segall walks you through the process:

The Internal Revenue Service says everyone who is employed in the United States – even those who are working here illegally – must report income and pay taxes. Of course, undocumented workers are not supposed to have a social security number. So for them to pay taxes, the IRS created what's called an ITIN, an individual taxpayer identification number. A 9-digit ITIN number issued by the IRS provides both resident and nonresident aliens with a unique identification number that allows them to file tax returns.


Each spring, at tax preparation offices all across the nation, many illegal immigrants are now eagerly filing tax returns to take advantage of a tax loophole, using their ITIN numbers to get huge refunds from the IRS.

The loophole is called the Additional Child Tax Credit. It's a fully-refundable credit of up to $1000 per child, and it's meant to help working families who have children living at home.

And this is where the scheme kicks in: many illegal immigrant use the tax credit to claim children living in Mexico as dependents.

"We've seen sometimes 10 or 12 dependents, most times nieces and nephews, on these tax forms," the whistleblower told Eyewitness News. "The more you put on there, the more you get back."

Watch the wthr.com report:

According to Eyewitness, the whistleblower was able to provide proof of the scheme. For instance, he produced a return that shows a $10,3000 refund paid out to an “undocumented worker” who claimed nine nieces and nephews. Another return showed an $11,000 refund made to another "undocumented worker" who claimed seven nieces and nephews.

"I can bring out stacks and stacks. It's just so easy it's ridiculous,” the anonymous source said.

"The magnitude of the problem has grown exponentially," Russell George, the United States Department of Treasury's Inspector General for Tax Administration (TIGTA) said.

Photo Courtesy WTHR News

A report released by George's office shows the problem costs taxpayers more than $4.2 billion each year.

"Keep in mind, we're talking $4 billion per year," George said. "It's very troubling."

Apparently, the IRS has known about the scheme for years and it has done nothing about it despite repeated warnings from the inspector general's office.

"Millions of people are seeking this tax credit who, we believe, are not entitled to it," said the inspector general. "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."

This is what the IRS had to say for itself in an official statement sent to WTHR:

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. Any suggestion that the IRS shouldn't be paying out these credits under current law to ITIN holders is simply incorrect. The IRS administers the law impartially and applies it as it is written. If the law were changed, the IRS would change its programs accordingly.

The IRS disagrees with TIGTA's recommendation on requiring additional documentation to verify child credit claims. As TIGTA acknowledges in this report, the IRS does not currently have the legal authority to verify and disallow the Child Tax Credit and the Additional Child Tax Credit during return processing simply because of the lack of documentation.

The IRS has procedures in place specifically for the evaluation of questionable credit claims early in the processing stream and prior to issuance of a refund. The IRS continues to work to refine and improve our processes.

Read the full report here.

(H/T: Washington Free Beacon)

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