The IRS cannot verify that illegal immigrants are who they say they are, the tax agency’s inspector general reported Thursday in a new study that says the government doesn’t have the tools to validate foreign governments’ identifying documents, and could be paying refunds without truly knowing who it’s sending them to.
IRS agents also don’t have enough expertise to know what they’re looking for in the foreign documents illegal immigrants are often submitting to prove their identity and to gain an Individual Taxpayer Identification Number (ITIN), the Treasury Inspector General for Tax Administration said.
Worse yet, examiners told investigators that without training, they each apply different standards to determine what kinds of documents to accept. Some only look to see that a foreign government stamped documents, while others probe further, looking for potential red flags.
“Not only are the IRS’s procedures insufficient, but they are also not being followed in some instances,” the inspector general said in a report that had some of the key loopholes redacted so as not to give other would-be fraudsters a road map for the future.
In a sample of 54 approved ITIN applications, four of them were approved even though they were based on documents that never should have been accepted as proof, investigators said.
Examiners and managers seemed well aware of the problem already, and the IRS in 2013 had even studied other ways to try to improve the checks, but decided the potential for fraud was too small to justify the added expense, hassle and potential security risks of requiring original documents with security features from foreign governments.
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The IRS accepted the criticism, though it said it’s already taken steps to crack down on potentially bogus ITIN claims.
In 2009, it issued 1.8 million ITINs, but issued just 638,000 in 2014 — a drop it attributed in part to limiting the types of documents it would accept.
“We further note that the tax examiners reviewing and processing ITIN applications are empowered with the authority to reject any application they believe to be potentially fraudulent,” Debra Holland, commissioner of the IRS’s wage and investment division, said in the agency’s official response to the report.
Investigators said they became aware of the problem after a tip from an agency employee who complained to Congress, saying he’d spotted the loophole.
The State Department, which often has cause to review the same kinds of documents, uses more robust checks — though exactly what it does was redacted from the inspector general’s report.
After the inspector general raised the new problems, the IRS earlier this year met with the State Department to talk about solutions. But the tax agency said getting too strict about what documents to accept could actually violate treaties the U.S. has with some nations.
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ITINs were already controversial. The theory behind them is that the IRS needs to collect taxes on income no matter who earns it — including illegal immigrants.
Some members of Congress have urged the administration to use the list of ITIN holders to crack down on illegal immigrants, but the agency has resisted.
More recently, the IRS acknowledged that illegal immigrants who qualify for President Obama’s deportation amnesty and are issued Social Security numbers will be able to go back and claim refunds on income for up to three previous years — including years when they never filed their taxes in the first place.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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