IRS announces reform following WTHR investigation - 13 WTHR Indianapolis

IRS announces reform following WTHR investigation

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INDIANAPOLIS -

Following a four-month investigation by Eyewitness News, the IRS has announced a major change designed to reduce fraud by undocumented workers who file tax returns.

Beginning immediately, the IRS says applications for Individual Taxpayer Identification Numbers (ITINs) must include original documentation, such as passports or birth certificates, to prove identity and foreign citizenship. ITINs are issued to people who are not eligible to obtain a social security number, and they allow noncitizens to file tax returns with the IRS.

The IRS says it is making the change to strengthen its ITIN application requirements, and today's announcement comes after 13 Investigates exposed how the IRS's ITIN system is plagued by abuse and fraud.

Eyewitness News showed how many undocumented workers get ITIN numbers from the IRS simply to collect huge tax refunds for family members who don't even live in the United States. And IRS workers across the country told WTHR millions of ITIN applications are submitted to the IRS using forged, fabricated and bogus documents that include false notary stamps. Those workers, including many who work at the IRS's ITIN processing center in Austin, Tex., told WTHR they are encouraged to ignore blatantly fraudulent documents so they can quickly process as many ITIN applications as possible.

Following WTHR's reports, the IRS is immediately disallowing notarized documents from its ITIN application process. Original and certified documents are more difficult to forge, according to ITIN tax examiners. The IRS issued today's change on an interim basis, while the agency begins working on final rules that will be issued before the start of the 2013 tax filing season.

Eyewitness News has learned the U.S. Treasury Department's Inspector General for Tax Administration is preparing to release a new audit report detailing problems inside the ITIN processing center. That report will confirm all of WTHR's findings regarding IRS mismanagement and fraud involving the ITIN processing system. TIGTA has been investigating the problems for more than a year, and today's IRS announcement is seen as a pre-emptive response, implementing changes that will be recommended by the Inspector General.

TIGTA previously found undocumented workers collect more than $4 billion annually in Additional Child Tax Credits through the use of ITIN numbers. Congress is now debating possible changes to the tax credit program that would restrict access for those are not U.S. citizens. In the meantime, the IRS is now trying to address internal problems that make the Additional Child Tax Credit a prime target for abuse. The new reform announced by the IRS could save U.S. taxpayers billions of dollars by dramatically reducing the number of tax credits granted due to fraud.

IRS senior spokesman Terry Lemons offered this statement late Friday:

"Today's announcement reflects another step in the IRS's far-reaching effort to protect the integrity of the tax system and combat non-compliance and fraud. The IRS has stopped a record amount of fraudulent and inaccurate claims in recent years through actions aimed at preventing misuse of social security numbers, fraudulent withholding claims and other related measures. Today's announcement is an expansion of this effort to focus on another key part of the tax system and ensure that appropriate controls are in place to prevent fraud."

Read the IRS' announcement here.

See all stories and video related to this investigation.

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