Individuals who are not authorized to work in the U.S. nevertheless received $4.2 billion in refundable Additional Child Tax Credits from the Internal Revenue Service last year.
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The IRS issues individual taxpayer identification numbers, or ITINs, to people who lack Social Security numbers and are not authorized to work in the U.S. to facilitate the filing of tax returns. But federal policy remains unclear on the question of whether the taxpayers are entitled to receive refundable tax credits. Federal law denies the individuals the Earned Income Tax Credit and most federal public benefits. However, the view of IRS management is that the law does not provide sufficient legal authority for the IRS to disallow the ACTC to unauthorized workers.
“Clarification is needed on this issue,” said TIGTA Inspector General J. Russell George in a statement. “The Internal Revenue Service should work with the Department of the Treasury to clarify whether this credit, which is based on earned income, should be paid to those who are not authorized to work in the United States.”
TIGTA recommended that the IRS should also require unauthorized workers claiming the ACTC to provide verifiable documentation to support the claim that their dependents meet the qualifications for the credit, including residency.
TIGTA inspectors found that documentation associated with the returns filed by taxpayers with ITINs sometimes reveals that the individuals filing the returns have either fabricated an Social Security number or improperly used someone else’s SSN to obtain employment. The IRS generally does not inform the rightful holders of those SSNs that their numbers have been compromised. TIGTA recommended the IRS notify taxpayers when their SSNs are compromised.
“It is imperative that the IRS informs U.S. taxpayers that their Social Security numbers are being used fraudulently,” said George.
In response to the report, IRS management agreed to discuss with the Treasury Department the issue of ITIN filers’ eligibility for the ACTC. IRS officials did not agree to require additional documentation to support ACTC claims on returns filed by unauthorized workers, however, noting that they do not have the legal authority to verify and disallow these claims during processing; an examination is instead required.
“Questionable claims, including those where dependent residency is an issue, must be addressed through deficiency procedures,” wrote Michael Phillips, the IRS’s deputy inspector general for audit. “The Examination function requests proof of residency and other requisite documentation when the taxpayers are notified their return is being examined.”
TIGTA maintains that although the IRS lacks math error authority to deny the claims without an examination, it does have the authority to require documentation to claim a credit and to refer questionable claims to the Examination function during processing.
"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," said IRS spokeswoman Michelle Eldridge in an emailed statement. "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. Despite our disagreement over the correct application of the tax law, the IRS appreciates the targeted program recommendations made by TIGTA, and it will continue to analyze potential improvements to our programs."
