IRS workers OK "phony" documents from illegal immigrants


After WTHR exposed a tax loophole that allows illegal immigrants to collect tax credits worth billions, the Internal Revenue Service pointed the finger at Congress. But IRS whistleblowers are now coming forward to say the real blame lies within.

INDIANAPOLIS - Getting a letter from the IRS is something most of us don't look forward to.

But in the past few weeks, 13 Investigates has been getting letters, calls and e-mails from IRS employees who are blowing the whistle on their own agency. 

They say they were compelled to contact WTHR after seeing an Eyewitness News investigation that exposed a massive tax loophole for illegal immigrants. And they want to set the record straight about why the loophole now costs American taxpayers more than $4 billion per year.   

"I think most people will be very angry," said one of the IRS workers. "If they only knew what we do here – actually what we don't do – they wouldn't be happy."

Eleven current and former IRS workers contacted WTHR in the past three weeks. They all have three things in common:

  • They work/worked at an IRS processing center. 
  • They don't want to be identified for fear of retaliation by the IRS.
  • They believe the IRS is not doing enough to prevent undocumented workers from getting fraudulent tax credits and refunds.

Two of the workers agreed to meet in person near an airport on the East Coast.  The others talked with WTHR by phone and e-mail.

"I just saw your report and there's something I need to tell you," explained one of the IRS insiders. "I see this stuff every day and there isn't anything I can do about it."

It's all in the numbers

To understand the whistleblowers concerns, you first need to understand the system in which they work.  Most of them have experience working at an IRS facility that processes ITIN applications.

An ITIN is an individual taxpayer identification number issued to undocumented workers strictly for the purpose of paying taxes. The 9-digit number looks like a Social Security number, except it always begins with the number 9.   

In recent years, millions of illegal immigrants have sought an ITIN because of an IRS loophole that allows them to use that number to claim Additional Child Tax Credits. The credits (up to $1000 per child) are intended for working families with children living at home.  Illegal immigrants in the United States can legally receive Additional Child Tax Credits if they have children who live in their household for at least six months per year.   

But 13 Investigates discovered some undocumented workers claim Additional Child Tax Credits for children who live in other countries.  They apply for (and often obtain) ITIN numbers for those kids so they can list them as dependents on their tax returns, resulting in large tax refunds for children who've never stepped foot in the United States.

"I have tons of examples. This problem is so huge," said an Indiana tax preparer, who first brought the loophole to the attention of 13 Investigates. "It's so easy, it's ridiculous."

Why is it so easy?

The people who process ITIN requests and tax returns know the answer – and they want you to know, too.

"You know it's phony"

"I'd get stacks of ITIN applications – at least 250 – a day, and your job was to get them in and out. Just get them done and get that person a [ITIN] number," explained a former IRS worker who served as a trainer at an ITIN processing center. "You have to do X amount in an hour or you don't get your pay grade raise, you don't get that great evaluation. You have to kick them out as quickly as possible if you want to keep your job."

That worker, and most others who talked with WTHR, said pressure to process as many ITIN applications as possible leaves little time for scrutinizing documents that are supposed to accompany each ITIN application.

In addition to a the formal application, referred to as a W-7, ITIN applicants must also provide two original or certified copies of identifying documents, such as a foreign birth certificate, drivers license or voter ID card. According to IRS workers, those types of documents are easily forged, and bogus documents are what the ITIN processing center in Austin, Tex., receives every day.

"You can make most of them on your home computer," explained one of the IRS whistleblowers.

"So how do you know if the documentation is real or fake?" asked 13 Investigates.

"You don't," the whistleblower said.

"I can't read Spanish so I couldn't even read [the documents]," explained another IRS insider.

"Wait a second. You're expected to process documents and you don't even read the language the documents are [written] in?" 13 Investigates asked.

"Correct," they said simultaneously. 

"We get applications from Mexico, Honduras, China, Japan, Bulgaria, all over the world. How are we supposed to read all that? But I guarantee 90% of them are phony. We see the same signatures hundreds of times. We see the same docs photocopied and attached to different applications. It's the same person, same photo, same address. I've seen the same birth certificate twelve times now in the past day. You see it all on an ITIN application," the IRS insider said.

"So what do you do with that application?" we asked.

"If the documentation is there, process it," admitted the insider.

"How? It was your job to make sure that documentation was correct," 13 Investigates said.

"No," the IRS insider said, quickly shaking his head.  "There's no way for us to do that. The documents would come in. That's it. We're done with it. We accept it … no ifs, ands or buts. You can sit there and look and you know it's phony. [There's] nothing we can do about it. Absolutely nothing."

Look the other way

Another current ITIN processing agent, who called WTHR while on his lunch break outside the Austin processing center, said many of the center's workers are part-time seasonal employees who have little training in identifying fraudulent documents.  He said the IRS has a "look-the-other-way attitude" about the overwhelming quantity of bogus documents submitted with ITIN applications.

"I have no doubt factories are mass producing these fake IDs. I have no doubt many of the birth certificates we get are for kids in other countries who don't exist," he said. "Most of these documents are fraudulent and there's absolutely no system here to catch it."

Current and former workers from the ITIN processing center tell Eyewitness News they have "raised red flags" to their supervisors about documentation that appears to be fraudulent. They say those complaints often go unheard.  Raising concerns and asking questions about individual ITIN applications is actually discouraged, according to the IRS workers, because that takes time and slows down the approval process.

"You're there to give them this [ITIN] number. You're not there to judge," said a former ITIN processing trainer.

"What do you mean 'you're not there to judge?' If you don't judge the validity of these documents, who is?" asked 13 Investigates.

"No one. This is how they're getting these [ITIN] numbers," the trainer replied.

That helps explain what some Indiana tax preparers see on a regular basis: illegal immigrants who get big tax refunds by sending the IRS paperwork that doesn't match.

Here's an example:

Victor filed a 1040 tax return, along with a W2 wage statement from his employer to show how much he got paid in 2011.  But the 1040 and W2 submitted to the IRS have different names and identification numbers. Victor's 1040 lists "Victor" as the taxpayer and shows an ITIN number.  The attached W2 is for someone named Jose, and it shows a Social Security number.

It's not a mistake.

"That's what happens," explained the tax preparer whistleblower who provided the documents to WTHR after crossing out last names, addresses, the last six digits of each identification number and all other identifying information. "A lot of these undocumented workers usually get a hold of somebody's Social Security number to get a job, then they use that number with an ITIN to file tax returns."

"As a tax preparer, when you see the Social Security numbers and names don't match up, why would you still send them in together?" asked Segall.

"Because the IRS tells us that is how we're supposed to do that," explained the tax preparer.  "Regardless of what that W2 says, as far as the Social Security number, the IRS guidance on this says you file the tax return using their ITIN number, attach the W2 to the return and from there, they handle it. And how they handle it is they pay out thousands and thousands of dollars on those."

He's right.

Victor listed seven nieces and nephews on his tax return -- all have ITIN numbers -- and, despite the discrepancies involving names and identification numbers, Victor got tax refunds and additional child tax credits totaling more than $9,000.

Stealing from taxpayers

Keep in mind, most undocumented workers cannot legally get a Social Security number, so if they're listing one on a tax return, it means the number is likely stolen from someone else.

That doesn't seem to bother the IRS.

Earlier this year, the IRS posted a notice on its website to tell tax preparers it will gladly accept tax returns with an "ITIN/SSN mismatch."  The IRS' online e-file system was previously designed to reject computer-filed tax returns that showed an ITIN/Social Security number discrepancy.  That has been changed to make it easier to file tax returns for undocumented workers. According to the agency notice, "The IRS has changed the programming to ensure that these returns will not be stopped." 

"I don't understand why we're doing that," said a former ITIN processing agent. "They're basically using everyday Joe Taxpayer's Social Security numbers and cashing in with that number. This is out of control."

The U.S. Treasury Department's Inspector General for Tax Administration agrees. Last year his agency released an audit showing undocumented workers now receive more than $4.2 billion annually in Additional Child Tax Credits.        

"The IRS is not doing something as simple as requesting sufficient documentation from people seeking this credit," said inspector general Russell George.  "It's very troubling, and the current system has many problems."

After seeing evidence presented by WTHR, he renewed his call for changes at the IRS.

"The IRS needs to institute procedures to ensure the examples you just cited are stopped at the outset before the money goes out the door.  We have made recommendations to them as to how they could address this, and they have not taken sufficient action in our view to solve the problem," George said.

Silence from IRS headquarters

What steps is the IRS to prevent illegal immigrants and US taxpayers from obtaining tax credits fraudulently? 

During the past eight weeks, Eyewitness News has contacted the IRS 20 times to submit questions and to request an interview.  Each of the interview requests was ignored or declined, and the agency has not answered any of 13 Investigates questions. 

The agency did send WTHR a short statement, saying "The IRS has procedures in place specifically for the evaluation of questionable credit claims early in the processing stream and prior to issuance of a refund." 

The agency has not explained what those procedures are, and both current and former IRS employees who talked with 13 Investigates say if there are procedures, they are not aware of them.

"We don't have the resources to follow up on much and we're not allowed to flag problems," said an IRS worker in Austin, Tex.  "We have a lot of trouble tracking ITIN numbers. That's a tangled mess. We're good about writing scary letters, but actually investigating fraud is expensive and Congress doesn't want to fund the enforcement side."

When it comes to this tax loophole for illegal immigrants, the IRS blames Congress not just for a lack of funding, but also for a lack of action.  The IRS insists it cannot deny Additional Child Tax Credits for illegal immigrants without a new mandate from lawmakers.

"The law has been clear for over a decade that eligibility for these credits does not depend on work authorization status or the type of taxpayer identification number used. Any suggestion that the IRS shouldn't be paying out these credits under current law to ITIN holders is simply incorrect. The IRS administers the law impartially and applies it as it is written. If the law were changed, the IRS would change its programs accordingly," the IRS explained in its statement to Eyewitness News.

Following WTHR's investigation, the U.S. House of Representatives approved a budget appropriations bill that would limit Additional Child Tax Credits for individuals with a Social Security number, essentially eliminating the tax credit for undocumented workers.  The bill is expected to be killed in the Senate.