Illegal workers exploiting tax credit
September 7, 2011
A federal tax law passed in 2001 intended to widen the income tax collection net apparently had the opposite effect, opening the floodgates for massive fraud, according to a recent government report.
Undocumented individuals not authorized to be employed, milked U.S. taxpayers to the tune of $4.2 billion in 2010, asserts the Treasury Inspector General for Tax Administration, (TIGTA) a federal investigative auditing agency.
“Payment of federal funds through this tax benefit appears to provide an additional incentive for aliens to enter, reside, and work in the United States without authorization,” the report’s author’s claim.
Most of the fraudulent payments were for child tax credits and went to employed, undocumented workers, who, in order to obtain work, had previously secured false documentation.
A red flag was raised when that agency’s auditors noted “a significant volume of these returns claiming the Additional Child Tax Credit.”
The TIGTA report said questionable child tax credit claims in 2005 were $924 million, the current level of payout nearly four times that amount.
Internal Revenue Service tax codes require every individual who earns an income to file a tax return. So, undocumented workers file for refunds of their paycheck withholding, and then inflate the number of tax credits due them. When the value of those credits exceed undocumented workers’ tax payments, the difference is refunded in cash.
The auditing agency suggested that as more and more undocumented workers gain possession of false identification, tax credit fraud will intensify. Proposals for legislative solutions have been forwarded to Congress, the report concluded.