IRS Doles Out $6.8 Billion in Refunds to Illegals

The Internal Revenue Service regularly issues something called Individual Tax Identification Numbers (ITINs) to people living in the US, but who are not eligible for a Social Security number. The ITIN program was created in 1996 so that these people can file tax returns. However, most of these people are illegal aliens working in theUS.

The question you’re probably asking is, why would these illegals want to file a tax return? Don’t they prefer to keep their income hidden from the government? It may surprise you to know that 2.9 million ITIN tax returns were filed last year alone. Well, you probably are thinking, isn’t it great that many illegals were filing tax returns and paying taxes?

That is until you learn that they received $6.8 billion in tax refunds (including refundable tax credits) last year! No wonder they were filing tax returns, in some cases multiple returns and lots of fraudulent returns to get refunds. Surprise, surprise! Isn’t this a great country?

Actually, the full story is even worse. It turns out that a number of IRS employees recognized that this was/is tax fraud. Numerous employees reported the ITIN fraud to their supervisors, but many IRS supervisors told their employees to ignore the fraud and process the refunds anyway. As we learn below, this practice was widespread within the IRS and it has gone on for at least several years.

Some of the IRS employees were so outraged at what was happening that they went above their supervisors and filed complaints with the Treasury Inspector General for Tax Administration (TIGTA). This story first surfaced about a month ago in a report by Indianapolis TV station WTHR. At that time, the IRS denied the allegations were true. However, when TIGTA investigated the allegations, it found that the IRS employees’ complaints were TRUE.

Not only that, the TIGTA investigation discovered that IRS management was not concerned with addressing questionable applications and was interested only in the volume of applications that could be processed, regardless of whether they are potentially fraudulent. In particular, TIGTA found that IRS management created an environment that discouraged tax examiners from identifying questionable ITIN applications; eliminated successful processes used to identify questionable ITIN application fraud patterns and schemes and established processes and procedures that are inadequate to verify each applicant’s identity and foreign status.

Actually, TIGTA has been investigating these ITIN tax refunds since at least 2010 and has chronicled the steadily growing numbers of tax refunds going to ITIN filers, which as noted above soared to $6.8 billion in 2011. But nothing has been done to stop this practice until this year. Thanks to complaints filed by IRS employees, TIGTA decided to crack down on the fraudulent tax refunds beginning this year.

TIGTA Inspector General Russell George issued the following statement at the conclusion of its investigation earlier this year: “TIGTA’s audit found that IRS management has not established adequate internal controls to detect and prevent the assignment of an ITIN to individuals submitting questionable applications. Even more troubling, TIGTA found an environment which discourages employees from detecting fraudulent applications.”

The result is that the IRS recently announced a series of improvements that will take effect immediately on an interim basis. TIGTA made nine specific recommendations in its report. The IRS reportedly agreed with seven of the recommendations and has announced plans to implement the changes based on TIGTA’s findings.

Here are a few other details gleaned from the TIGTA’s audit of the IRS that you’ll find interesting. As noted above, not only did the audit confirm that IRS procedures discouraged employees from flagging potentially fraudulent ITIN applications, but also that IRS management went so far as to disband a review group with proven success at identifying fraudulent activity. So it is clear that IRS management did this intentionally, not by accident.

Further, the TIGTA report also uncovered that 154 specific mailing addresses were used 1,000 or more times on ITIN applications. Ten specific individual addresses were used for filing 53,994 tax returns, resulting in the processing of $86.4 million in fraudulent tax refunds. Ten specific bank accounts received 23,560 tax refunds totaling over $16 million. At one Michigan address where the IRS had previously rejected an ITIN application, the agency later went on to issue 640 separate refunds to that address totaling $1.5 million. This is astonishing!

As noted above, a total of $6.8 billion was paid out last year, and who knows how much more was paid out this year. Of course, we’ll never see that money again!

Here again, the question comes up: Did this practice evolve as part of a greater effort to manufacture more dependency on the government and more votes for the politicians (especially in states with no voter ID requirement)? We’ll probably never know, but it sure fits a pattern, doesn’t it?

Gary D. Halbert is the president and chairman of Profutures, Inc.  Subscription rates for Forecasts & Trends is $197 for 12 issues and may be obtained by visiting his website at www.profutures.com.

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