You read that right. It turns out that illegal aliens are required to file with the IRS. They got paid (illegally), but it is illegal for them not to file. Their employers did not file, since it was illegal to hire them.
The illegal aliens have children. Each child is worth $1,000. This is a tax credit. But the illegal aliens sometimes have more tax credits than wages. So, the IRS issues them checks for the difference.
Do you follow this so far?
Some illegal aliens have figured out that they can claim more kids than they have. No one at the IRS looks into this. So, the IRS pays. The estimate is that it shelled out $4.2 billion in fiscal year 2010 based on fraudulent returns. This appeared in a Treasury Department report issued in July 2011.
You have to see the original of this report. You would not believe it if you could not see it. This is a masterpiece of government reporting and typesetting.
The report goes on. Try to follow it. I dare you. It covers a 1996 law that prohibits refund payments to workers who do not submit a Social Security number. Illegal Aliens do not have one. So, earned income tax credits (EITC) are not to go to them. They file with a different number, the ITIN. Furthermore, the report says, “the same law prohibits aliens residing without authorization in the United States from receiving most Federal public benefits, with the exception of certain emergency services and programs.” Clear? Not to the IRS.
Nonetheless, IRS management’s view is that the law does not provide sufficient legal authority for the IRS to disallow the ACTC to ITIN filers. In addition, the Internal Revenue Code does not require an SSN to claim the ACTC and does not provide the IRS math error authority to deny the credit without an examination. As such, the IRS continues to pay the ACTC to ITIN filers.
But what is the ACTC? I thought you’d never ask.
The ACTC is the refundable portion of the Child Tax Credit (CTC). The CTC can reduce an individual’s taxes owed by as much as $1,000 for each qualifying child. The ACTC is provided in addition to the CTC to individuals whose taxes owed were less than the amount of CTC they were entitled to claim. The ACTC is always the refundable portion of the CTC, which means an individual claiming the ACTC receives a refund even if no income tax was withheld or paid. As with all refundable credits, the risk of fraud for these types of claims is significant.
Result? About $4.2 billion in refunds on taxes never paid.
The Treasury issued this report. Result? Nothing.
It gets worse, according to this assessment.
More than 2 million illegal workers claimed the credit in 2010, a 46 percent increase over 2008. The government paid out $4.2 billion to illegal filers, double 2008’s $2.1 billion price tag.
The child tax credit is one of the most popular loopholes to exploit, according to the report.
“[Immigrant] filers are much more likely to claim the [child tax credit] than other individual taxpayers,” it stated. “We found that in Processing Year 2010, 72 percent of all [immigrant] filers claimed the [child tax credit], while only 14 percent of non-[immigrant] filers claimed the [child tax credit].”
The credits are also hotbeds for fraud. The IG analyzed 250 potentially fraudulent returns from fiscal year 2009 and found that 91 percent of illegal workers claimed the credit, totaling about $570,000.
The IRS has sought legislation that would block illegal workers from receiving tax credits—a solution the latest IG report reiterated. In May, Senate Majority Leader Harry Reid (D., Nev) blocked a Republican attempt to implement those recommendations.
And so it goes. The tax system is a maze that resembles the looking glass that Alice went through.
The people who run this system think they are needed to make the free market run more efficiently, and also to be fair.