An audit of the IRS reveals that more than $4 billion in refundable credits went to undocumented workers in 2010. The report released by the Treasury Inspector General for Tax Administration blames unclear tax laws for child tax credits.
The federal tax break is based on income. Qualifiers reduce the amount of taxes owed. In some cases, those who qualify receive tax returns. The audit said the $4.2 billion in refunds sent out by the IRS last year was nearly four times the amount refunded five years ago.
The federal tax agency claims its hands are tied. IRS officials say the agency does not have the authority to question a tax filer’s immigration status for the processing of tax returns.
Auditors say the tax laws governing the child tax credit are very unclear when it comes to who qualifies. The IRS says some of the problem can be traced to the way tax filers identify themselves on returns.
Individual taxpayer identification numbers (ITIN) are used by wage earners who are not authorized to have Social Security numbers. Auditors found that, among those who filed returns using ITINs, more than 70 percent had requested the federal child tax credit. The report stated that many of the claims were false.
Child tax credits have also become easier to obtain. At one time, taxpayers only qualified for the credit if they had three or more children. That qualification hurdle and several others were removed in 2001. At the same time, refund allowances per child were also increased.
The IRS has been advised by auditors to push for clarity on refundable tax credit laws and cross check ITIN numbers with immigration statuses. IRS officials have agreed to talk with Treasury Department officials about the laws’ definition, but stated that they cannot break legal bounds where taxpayers’ immigration statuses are concerned.
Source: The Washington Post, “Undocumented workers collect $4.2 billion from IRS in tax credits, audit finds,” Lisa Rein, Sept. 2, 2011