IRS center that reviews info from illegal workers still plagued by "chaos"

These IRS tax examiners are skeptical of recent changes.
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WTHR's "Investigating the IRS" reports made national headlines, sparked Congressional debate and triggered action by the U.S. Inspector General. The year-long Eyewitness News investigation exposed the IRS giving out billions of dollars in fraudulent tax credits to undocumented workers, and it prompted the IRS to announce significant changes.  A year later, IRS insiders tell 13 Investigates those changes are flawed and many of them are simply not working.

Bob Segall/13 Investigates

AUSTIN, TX - If Howard Antelis looks familiar, it's because he's the guy who blew the whistle on the IRS.

"I'm horrified and ashamed and embarrassed by what I've seen," the veteran IRS tax examiner told 13 Investigates last summer. "We've been allowing the U.S. taxpayer to get robbed for years now... and we should all be outraged at what's going on."

Antelis, along with a tax preparer in central Indiana, helped WTHR expose massive fraud involving the IRS.  Eyewitness News discovered the federal agency had been giving away billions of dollars in improper tax credits to undocumented workers. Making matters worse, the IRS had known about the problem for nearly a decade and failed to act.

Three months after the Eyewitness News investigation, the IRS announced it would make changes to prevent the fraud and to correct the widespread mismanagement identified by Eyewitness News.

The IRS claims those changes are working.

"The IRS has made clear progress … during the past year. We have taken new steps to strengthen our process to protect against fraud while working to minimize burden on deserving applicants," the IRS wrote in a statement to WTHR

But Antelis and other IRS insiders paint a much different picture of what's actually happening inside the IRS. They say the progress is slow and the results are very questionable.

Pinpointing the problem

WTHR's investigation prompted the IRS to acknowledge disturbing problems inside one of its processing centers in Austin, Tex.  That is where the IRS handles applications for Individual Taxpayer Identification Numbers, better known as ITINs.  

Regardless of a worker's immigration status, ITINs are granted by the IRS to allow illegal immigrants to pay taxes on income they earn in the United States.   

But 13 Investigates discovered the IRS granted ITINs to millions of undocumented workers who presented bogus identification papers for themselves and for family members who either never lived in the United States or who did not exist at all. And instead of using the identification numbers to pay taxes, many of the workers used their ITINs to fraudulently obtain tax credits for young relatives living in other countries – costing the U.S. Treasury billions of dollars each year.

Antelis and other workers at the Austin processing center told 13 Investigates they had detected massive fraud on ITIN applications for years and repeatedly complained to IRS management. But each time they complained, IRS bosses told them to look the other way.

"The things you found are shocking and unacceptable," said Russell George, the U.S. Treasury Inspector General for Tax Administration, after seeing WTHR's findings. "It shows significant changes are needed to protect taxpayers and to ensure the integrity of the system."

Following WTHR's reports, TIGTA released a detailed audit calling on the IRS to make sweeping changes in its ITIN Processing Center.

The IRS agreed.

The agency announced late last year it would provide workers more training, time and tools to catch fraud; it would strengthen rules to make fraud more difficult; and it would review and revise policies to improve its overall operations.

"They said all the right things, but most of it's all a joke," Antelis told Eyewitness News during a recent interview.

Speaking out

A year after WTHR aired its original investigation, senior investigative reporter Bob Segall returned to Austin to again meet with Antelis and other IRS tax examiners who work on the front lines at the ITIN Processing Center.  Most of the workers are not impressed with the changes implemented by the IRS.

"It's still a big scam going on," Antelis said from his living room. "It's still very easy to rip us off."

"They pretty much turned the whole department upside down on its head, but I'm not sure how much good it's done," agreed tax examiner Linda Wickus.

Those IRS workers -- and others who asked not to be identified for fear of retaliation by the IRS -- said they were sharing their own opinions and not offering an official statement on behalf of the IRS.  

(Prior to our recent trip to Texas, WTHR did request an interview with a senior ITIN manager, but we did not receive any response to that request. However, on the morning of our Austin visit, ITIN Operations Manager Janice Williams did send a warning to all ITIN staff informing them they were not authorized to speak to the media as an official spokesperson for the agency.) 

Wickus and Antelis both say the IRS has made it more difficult to get an ITIN for children who live outside the United States – a result of the agency no longer accepting photocopied school records and other documents that were often fraudulent. 

But they say thousands of suspicious ITIN applications still get approved because the IRS is constantly changing its ITIN rules, creating confusion for inspectors.

"Since last year, we've received literally hundreds, at least hundreds, of ITIN rule changes," Wickus said. "I have a whole IRM (Internal Revenue Manual) full of changes and most [inspectors] just can't keep up because it's so confusing."

"They change every day," added Antelis. "What it's led to is anarchy on the floor. The rules are so inconsistent and confused now, there's no real guidance on almost anything and in that way, things have actually gotten worse."

"Not sure what I'm looking at"

One of the key rule changes aimed at reducing ITIN fraud is that undocumented workers must now provide original or certified identification papers to get their ITIN numbers.  Notarized photocopies are easily forged and no longer accepted.  But some tax examiners suspect a lot of the certified documents are fake, too.

"How do you know if a certified document is a real, legitimate certified document?" asked 13 Investigates.

"We don't, Antelis said. "We get photocopies with an ink stamp from a certified issuing agency, a consulate or an embassy. There are 1400 consulates and embassies throughout the world, and we are given no guidance as to what their stamp is supposed to look like. A smart crook will figure out ‘I just need to get this other kind of ink stamp and I can keep making my photocopied documents and still acquiring ITINs.'"

Another ITIN worker, who talked with WTHR via phone, said the agency has provided ITIN tax examiners with tools intended to help them detect fraudulent certification stamps.  Those tools include a pamphlet from the U.S. Department of Homeland Security, a flashlight, a blue light and a magnifying instrument.

"I don't think any of them are particularly effective because I'm still not sure what I'm looking at," admitted the IRS worker.  "We just didn't get a lot of training."

Training continues to be a sticking point inside the ITIN Processing Center.  Since 13 Investigates exposed widespread tax fraud involving ITINs, the agency has brought in hundreds of new workers to try to catch that fraud. But IRS insiders say most of the new workers are not well equipped for the job.

"It takes experience and training and an eye for detail to catch the fraud," said Wickus, who has years of training in fraud examination.  "Most people here don't have that. We're talking temps that they hired. They hire temps with a contract of 90 days, and that's the intrinsic problem because you're trying to take a group of 600 to 800 people and give them maybe an hour, two hours of training and say, "Ok, now you're fraud examiners. Now you can examine documents and determine if they're fraud or not … It's impossible."

Seeing fraud first-hand

The continued lack of training in Texas is having a huge impact in tax preparation offices all over the country.

"Not very much has changed, and that is really disappointing," said a tax preparer in Indianapolis.

The accountant thought things would change after he saw WTHR's investigation a year ago.  He works for a tax service that serves illegal immigrants in Indianapolis, and he requested that Eyewitness News not identify him because his company did not give permission for him to speak with the media.

"I think it's still important to speak up because what's happening is wrong, and it should be a big concern," he said.

He's so concerned about tax fraud, the tax preparer has started warning his clients about the implications of filing a fraudulent tax return. And because 90% of his clients are undocumented workers, the bi-lingual accountant gives the warnings in Spanish to make sure his customers clearly understand they're not supposed to claim child tax credits for family members who live in other countries. 

But he says this year, hundreds of clients still decided to do it anyway.

"We asked them directly if the children live here or not. Most of the time they said, ‘No, they do not live here' and that's when we explained to them there's a risk they could audit you," the tax preparer explained. "But the clients' attitude was 'Why not? I have nothing to lose.'"

"Why would a tax preparer, a tax office, make the decision to go ahead and still a complete those tax returns, even though you know they're not right?," asked 13 Investigates. "It seems like the tax preparer is committing fraud too."

"We believe it's the IRS's job to ask for proof of residency that those children live here," the tax preparer responded. "We thought at the beginning of the tax season that instead of these people getting their tax refunds, that they would get letters asking for proof that those children are actually here. But that did not happen."

That means more than a year after 13 Investigates helped expose the problem, the IRS is still giving out tax credits for children who've never stepped foot in the United States.

"That's still happening every day," the accountant explained. "They're getting refunds of $5,000, $6,000, $7,000."

He says that adds up to nearly a million dollars in bogus tax refunds from just his one small tax office in Indiana.

Nationwide, the number is estimated to be in the billions – still.

Antelis says taxpayers will continue to take a big hit until the IRS catches on to the real problem: the IRS spent a decade giving out millions of ITIN numbers that never should have been given in the first place, and those numbers are still being used to get fraudulent tax credits.

Because the IRS has not yet decided what to do with all those questionable ITINs, tax examiners can do little stop it.

"We're accepting that [ITIN number] like it's a legitimate person even though we know that 80% of what we assigned during those years was bogus," Antelis explained. "Nothing has been done to correct it."

Glimmer of hope?

Last month, TIGTA followed up its 2012 audit with a review of ITIN's progress.

The inspector general found "the IRS initiated corrective actions to address the majority of recommendations included in our prior audit report. These actions are significantly improving the identification of questionable ITIN applications."

The report cites a 50% jump in the number of ITIN applications rejected due to questionable documentation from the period of July through December 2011 (226,011) compared to the same period in 2012 (340,659).

While some may consider the increased scrutiny to be a positive sign, IRS insiders say the higher number of rejections among new ITIN applications is likely the result of confusion among tax examiners due to the rapidly-changing rules, and a new merit system that penalizes tax examiners who miss fraud.

"A lot of TE's (tax examiners) won't approve anything right now. They just toss everything into [reject] status if there's even the slightest question," an ITIN tax examiner told WTHR earlier this month.

The TIGTA report does not address the amount of potentially-fraudulent tax credits given out by the IRS within the past year as a result of the millions of ITIN numbers already granted by the IRS.

It does, however, criticize IRS management for failing to develop procedures to investigate and stop schemes related to fraudulent ITIN numbers.  Last year, WTHR reported the IRS sent $46 million in tax credits to 23,994 undocumented workers who listed a single address in Atlanta, Ga.

"Overall there has been some progress. It's a start," said Antelis. "But based on what I see at ground level, we still got a lot of problems.  We've still got a long way to go."

This month, Antelis is on a leave of absence from the IRS for what the whistle-blower referred to as "some much-needed stress relief." He will return to the ITIN Processing Center next month.

"Can't wait," he said with a slight grin and raised eyebrow. "There's a lot to do."