Illegal Immigrants and the abuse of the ITIN
2022-06-27 12:51:21
Illegal
Immigrants and the abuse of the ITIN
In recent years, one of the main concerns
with the management of the Individual
Taxpayer Identification Number system has been abuse and fraud by illegal
immigrants. Indeed, just a few short
years ago there was something of a scandal surrounding allegations that IRS
officials were being told to process obviously fraudulent requests for ITINs.
To counter that, the IRS has been pressured into implementing various changes
to the system to ensure that the ITINs they issue are actually being used.
Despite that, there seems to be little doubt that fraud continues to be a
problem.
Part of the problem stems from the change
in mission that the IRS engaged in with respect to these numbers. Most people
are unaware that these numbers were created to deal with the Agencys inability
to properly account for roughly eighty billion dollars in investment income for
nonresident aliens. The entire purpose was to provide those aliens with an
identifying number that could be used to verify their identities on the income
documents that they presented when filing taxes. That was almost two decades
ago.
Since that time, the IRS went from
providing these numbers to nonresident aliens to issuing them to resident
aliens as well. That decision has been implemented without regard to whether
those resident aliens are in the country legally or illegally, and has resulted
in untold ITINs being issued to illegal immigrants over the last nineteen
years.
Now this is where it gets tricky. Since
anyone with an ITIN who files taxes is allowed to claim dependency exemptions
just as any American citizen or other SSN holder could, there have been reports
of illegal immigrants claiming and securing tax refunds by utilizing the Child
Tax Credit features in the tax code. Aside from the fact that they are in the
country illegally and thus not permitted to even work and earn income, that use
of the dependent credit allowance would seem fair.
However, there are many who have not
stopped with valid claims of dependents. Some have gone so far as to secure ITINs for their dependents that
still reside outside of the United States and then listed those dependents on
their tax returns. That has enabled many of these illegal immigrants to obtain
thousands of dollars in fraudulent refunds and has been estimated to cost
U.S. taxpayers billions of dollars each year.
Worse, the IRS has apparently known about
the abuse for years, and taken few if any concrete steps to address it. Just
two years ago, the Agencys Inspector General reported that the IRS sent out a
total of 2,706 refunds to one bank account and all 2,706 were believed to be
possible illegal immigrants. Other examples include situations in which the IRS
issued more than 15,000 separate ITINS to one single address in Phoenix, AZ. A
similar amount of separate ITINS were issue to one address in Texas.
There seems to be little argument about
whether fraud is occurring. The question is: what can be done about it? Well,
the IRS has new rules that place limits on the number of refunds that can be
sent to any single bank account. That limit is now three. Whether these and
other rule changes can help to reduce abuse of the ITIN system remains to be seen, but
at least its a start.
Irving Weissholtz