Eyewitness News of Indiana's WTHR reveals a massive tax loophole that provides billions of dollars in tax credits to illegal aliens and people living in foreign countries.
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. Eyewitness News has found many undocumented workers are claiming the tax credit for kids who live in Mexico.
A longtime Indiana tax consultant, who remains anonymous for fear of reprisal, came to 13 Investigates to blow the whistle about this nationwide problem involving illegal aliens who are filing tax returns.
"We're talking about a multi-billion dollar fraud scheme here that's taking place and no one is talking about it," tax preparer said.
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. Because illegal aliens are not supposed to have a social security number, the IRS created the individual taxpayer identification number, ITIN. 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.
This ITIN number is backfiring in a big way. Each Spring, many illegal aliens are now eagerly filing tax returns to take advantage of the Additional Child Tax Credit using their ITIN numbers to get huge refunds from the IRS.
"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."
The whistleblower has thousands of examples, and he brought some of them to 13 Investigates. The examples show that the tax filers had received large tax refunds after claiming additional child tax credits for many dependents.
WTHR spoke to several illegal aliens who confirmed it was easy to get the tax loophole credit.
One of the illegal aliens admitted his address was used this year to file tax returns by four other undocumented workers who don't even live there. Those four workers claimed 20 children live inside the one residence and, as a result, the IRS sent the illegal immigrants tax refunds totaling $29,608.
13 Investigates asked the illegal alien why illegal aliens should receive tax credits for children living in a foreign country.
"If the opportunity is there and they can give it to me, why not take advantage of it?" the illegal alien responded.
Several of the illegal aliens told WTHR they were told it was legal for them to claim the tax credit for a child who does not live in the United States.
According to Russell George, the United States Department of Treasury's Inspector General for Tax Administration (TIGTA), the IRS has known about this scheme for years.
"The magnitude of the problem has grown exponentially," he said.
George has repeatedly warned the IRS that additional child tax credits are being abused by illegal aliens. In 2009, his office released an audit report that showed ITIN tax filers received about $1 billion in additional child tax credits. Last year, the inspector general released a new report showing the problem now costs American tax payers more than $4.2 billion.
What George finds even more troubling is the IRS has not taken action despite multiple warnings from the inspector general.
"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 the IRS as to how they could address this, and they have not taken sufficient action in our view to solve the problem."
The IRS tells WTHR it can do nothing to change the current system unless it gets permission from Congress. In other words, according to the IRS, closing the loophole would require lawmakers to pass a new law specifically excluding illegal immigrants from claiming additional child tax credits.
Congressman Dan Burton (R-Ind.) is frustrated and ready to act.
Rep. Burton and dozens of other House Republicans have co-sponsored a bill that would essentially authorize additional child tax credits only for US citizens. House Resolution 1956 would require tax filers to provide a valid social security number to receive an additional child tax credit.
"This rampant abuse of hardworking taxpayer dollars is just wrong," said Rep. Sam Johnson (R – Texas), who authored HR 1956. "It's time we close this tax loophole and put a stop to the child tax credit sham."
HR 1956 has sat idle in the House Ways and Means Committee for almost a year.
However, language from the bill is now included in a package of proposed budget savings measures that House lawmakers are expected to consider in May. While the budget package may have enough support to pass the House, it is expected to die a quick death in the Democratic-controlled Senate.
"This should not be a partisan issue because we're all concerned about saving taxpayer dollars and not wasting them on fraudulent things like this," said Rep. Burton.
It is not just Republicans who are concerned about the issues, Democrat Senators have taken action as well.
Last fall, Senator Claire McCaskill (D- Mo.) sent a letter to IRS Commissioner Douglas Shulman asking him to stop the agency's payments of additional child tax credits to undocumented workers. "This is deeply problematic and must be remedied," the senator wrote.
"I'm a taxpayer, and the thought of me paying for 24 people who are living in one trailer boggles my mind, especially when you tell me most of them are still living in Mexico. That's unconscionable." said Rep. Burton.
"It's cheating the American taxpayer," Burton said. "We all believe in humanity and humanitarianism, but we've got a $15 trillion national debt. We can't subsidize the whole world."
For more information on this story and to see what you can do about HR 1956, read WTHR.