Tax loophole nets illegal immigrants billions

Author: Joel Eisenbaum, Investigative Reporter, Anchor, jeisenbaum@kprc.com
Published On: May 09 2012 06:10:55 PM CDT   Updated On: May 09 2012 10:09:44 PM CDT
IRS Taxes Money Houston
HOUSTON -

A loophole in Federal Tax Code has allowed illegal immigrants to pocket billions of dollars, according to a report by the Treasury Inspector General.

The additional child tax credit (ACTC) is designed to give hardworking, legal U.S. citizens with multiple children up to $1,000 per child.

But the investigation found that illegal immigrants not authorized to work in the U.S. took advantage of this credit more than five times more often than legal U.S. residents.

"This tax benefit appears to provide an additional incentive for aliens to enter, reside, and work in the United States without authorization," the report concluded.

Millions of illegal immigrants file taxes as a mechanism to pave the way to legal residency and citizenship. They file taxes not with a Social Security Number, but with an easier to obtain Individual Tax Identification Number, frequently called an ITIN.

But some people who cannot legally work in the United States are obtaining an ITIN and claiming children, who may live in another country or may not even exist.

Local 2 Investigates visited a dozen independent tax preparers in the Houston area.

None of the preparers offered to specifically prepare a phony return, but many were familiar with the practice of ITIN filers applying for child tax credits.

"You can ask for ITIN Number and see if they'll give it to you," said one woman.

Part of the problem maybe with the tax code and federal law. Neither specifically prohibits the practice even though the current system is ripe for abuse.

Evidence has shown some illegal immigrants claimed a half dozen or more nieces and nephews with questionable documentation to earn up to a $1,000 a piece.

Several lawmakers are trying, and have tried in the past, to shore-up this loophole. U.S. Rep. Kevin Brady (R-Texas) is among that group.

"This is long overdue. Why are hardworking Americans sending their taxes to Washington to have them lost to fraud and abuse in the tax system?” Brady said. 

Brady supports recent legislation that would specifically prohibit ITIN filers from obtaining Child Tax Credits.

But that specific bill may not be destined for smooth sailing. It is folded into another piece of legislation that seeks to trim other federal programs.