IRS ‘amnesty bonus’ tax refunds for illegal immigrants to cost $2 billion over 5 years

Illegal immigrants will file 800,000 claims for Earned Income Tax Credit refunds under President Obama’s new deportation amnesty, costing the government $2 billion over the next five years, Congress’s scorekeeper predicted this week as key lawmakers proposed legislation to cancel what’s become known as the “amnesty bonus.”

Led by Sen. Chuck Grassley, chairman of the Senate Committee on the Judiciary, the 11 Republican senators said giving illegal immigrants a tax credit for time when they were working illegally makes no sense and is unfair to taxpayers.

“The tax code shouldn’t reward those who broke our immigration laws,” Mr. Grassley said.

Mr. Obama’s November 2014 policy, which has been put on hold by a federal court, would apply to as many as 4 million illegal immigrants. They would be granted three years of tentative legal status and be given work permits and Social Security numbers.

Being granted a Social Security number triggers certain benefits, including being eligible for the Earned Income Tax Credit for up to three previous years as well as going forward.

Mr. Grassley’s bill would halt that, prohibiting illegal immigrants from going back and claiming the EITC for previous years, as well as for the year in which they were granted the deportation amnesty, which the administration has dubbed “deferred action.”

The legislation would ensure the Social Security Administration is sharing information with the IRS, so tax agents know who the newly legalized workers are and can check to make sure they’re not claiming the tax credit.

The Joint Committee on Taxation (JCT), which is Congress’s official scorekeeper for tax legislation, calculated that illegal immigrants who are approved for the amnesty would have filed 800,000 EITC claims over the next decade. Most of those will come between 2017 and 2020, the analysts said.

The government would spend about $400 million on refunds in 2017, $1.1 billion in 2018, $400 million in 2018 and $100 million in 2020, the JCT calculated. It figured it would take the IRS a year to get up and running, so 2016 isn’t included.

Whether the bill gets any traction remains to be seen. It has been sent to the Senate Finance Committee, where Chairman Orrin G. Hatch said he hasn’t yet spoken with Mr. Grassley about the legislation.

But he said, as a senior member of the committee, Mr. Grassley will be hard to ignore, and he said even though he’s searching for a solution to illegal immigration, he agreed with Mr. Grassley’s point.

“You don’t reward illegal conduct,” said Mr. Hatch, Utah Republican.

The new amnesty is just the latest. Mr. Obama in 2012 created an amnesty for so-called Dreamers, or young adult illegal immigrants who came to the U.S. as children.

More than 600,000 illegal immigrants have already been granted deferred action under that program.

Mr. Grassley’s legislation would not prevent them from claiming the EITC for previous years, nor would the bill prevent workers approved for either the 2012 or 2014 amnesties from claiming the EITC for future years if they have been authorized to work by the administration.

Dennis J. Ventry Jr., a professor at the University of California, Davis School of Law, said the EITC and the rest of the tax code are tough enough to figure out for those brought up in the U.S., so it’s unlikely immigrants approved for the president’s policies would be able to figure out the refunds on their own.

He said it’s more likely someone helps them claim what they’re entitled to, and is a question of whether they get snared by unscrupulous tax preparers or find quality tax clinics.

“The question is whether the right people are going to find them to help them get, under the law, what they deserve,” Mr. Ventry said.

The IRS says it is following the law in issuing the payments.

The law allows anyone to file for up to three years of back-refunds. But applying that to illegal immigrants who have newly gained a Social Security number stems from a 2000 IRS legal counsel ruling.

“There is no requirement that the taxpayer, taxpayer’s spouse, or qualifying child have an SSN before the close of the taxable year,” Mary Oppenheimer, the IRS’s acting assistant chief counsel, said in the 2000 memo. “There is also no requirement that the return on which the SSN is reported and the EIC is claimed be an original, timely filed return. Thus, the EIC can be claimed on an amended return.”

Mr. Grassley said Ms. Oppenheimer’s interpretation is inconsistent with what Congress intended in a 1996 law designed to prevent illegal immigrants from claiming benefits.

The IRS has sewn confusion on Capitol Hill about how its policy would work.

Initially, Commissioner John Koskinen indicated to Mr. Grassley that an illegal immigrant would have had to file a return in order to go back and claim a previous credit.

A week later, however, he admitted a “lack of clarity” and told Rep. Mick Mulvaney, South Carolina Republican, that even illegal immigrants who hadn’t filed returns could go back and file them for three previous years — though they’d have to be able to prove their earnings for those years.

Then, last week, Mr. Koskinen again confused the issue when Sen. John Boozman, Arkansas Republican, asked whether illegal immigrants could claim the refund even if they were working off the books and hadn’t paid taxes.

“No,” Mr. Koskinen replied. “They basically have to, if they want to file an amended return, they have to file for the income they earned.”

Tax experts, though, said illegal immigrants can claim the credit even if they didn’t pay taxes before, and said Mr. Koskinen had been correct when he was talking to Mr. Mulvaney.

Mr. Koskinen last week downplayed the amount of money at stake, and speculated it would be difficult for newly legalized workers to claim it.

“A single employee at the low end of the scale without a family is eligible for a little less than $600 a year,” he said.