Political Hay

The IRS Immigration Fraud Scandal

Rubio, Ryan losing credibility over amnesty as fraud issue returns.

By 6.18.13

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Marco Rubio.

Paul Ryan.

The IRS.

Illegal immigration.

And fraud to the tune of billions..

Now there’s a combustible mix.

Let’s start with the IRS, illegal immigration and fraud. We’ll come back in a minute to Senator Rubio and Congressman Ryan.

For those who came in late, a year before the IRS scandals burst onto the scene in early May of 2013, an alert investigative reporter for WTHR-Indianapolis (Channel 13), Bob Segall by name, produced a stunning piece of journalism. Segall’s video report is found here and we will quote from his story for the basics. The tale begins when an Indiana tax preparer, who requests anonymity, comes to Segall to alert the investigative reporter to a major league tax fraud. The bold print for emphasis is mine.

"We're talking about a multi-billion dollar fraud scheme here that's taking place and no one is talking about it," he (the tax preparer) said.

The scheme involves illegal immigrants -- illegal immigrants who are filing tax returns.

How it works
The Internal Revenue Service says everyone who is employed in the United States -- even those who are working here illegally -- must report income and pay taxes. Of course, undocumented workers are not supposed to have a social security number. So for them to pay taxes, the IRS created what's called an ITIN, an individual taxpayer identification number. A 9-digit ITIN number issued by the IRS provides both resident and nonresident aliens with a unique identification number that allows them to file tax returns.

While that may have seemed like a good idea, it's now backfiring in a big way.

Each spring, at tax preparation offices all across the nation, many illegal immigrants are now eagerly filing tax returns to take advantage of a tax loophole, using their ITIN numbers to get huge refunds from the IRS.

The loophole is called the Additional Child Tax Credit. It's a fully-refundable credit of up to $1000 per child, and it's meant to help working families who have children living at home. 

But 13 Investigates has found many undocumented workers are claiming the tax credit for kids who live in Mexico -- lots of kids in Mexico.

"We've seen sometimes 10 or 12 dependents, most times nieces and nephews, on these tax forms," the whistleblower told Eyewitness News. "The more you put on there, the more you get back."

The whistleblower has thousands of examples, and he brought some of them to 13 Investigates. While identifying information such as names and addresses on the tax returns was redacted, it was still clear that the tax filers had received large tax refunds after claiming additional child tax credits for many dependents.

"Here's a return right here: we've got a $10,300 refund for nine nieces and nephews," he said, pointing to the words "niece" and "nephew" listed on the tax forms nine separate times.

"We're getting an $11,000 refund on this tax return. There's seven nieces and nephews," he said, pointing to another set of documents. "I can bring out stacks and stacks. It's just so easy it's ridiculous."

20 kids = $30,000
WTHR spoke to several undocumented workers who confirmed it is easy.

They all agreed to talk with WTHR investigative reporter Bob Segall and a translator as long as WTHR agreed not to reveal their identity.

One of the workers, who was interviewed at his home in southern Indiana, admitted his address was used this year to file tax returns by four other undocumented workers who don't even live there. Those four workers claimed 20 children live inside the one residence and, as a result, the IRS sent the illegal immigrants tax refunds totaling $29,608.

13 Investigates saw only one little girl who lives at that address (a small mobile home). We wondered about the 20 kids claimed as tax deductions?

"They don't live here," said the undocumented worker. "The other kids are in their country of origin, which is Mexico."

He later explained none of the 20 children have ever visited the United States -- let alone lived here.

So why should undocumented workers receive tax credits for children living in a foreign country, which is a violation of IRS tax rules?

"If the opportunity is there and they can give it to me, why not take advantage of it?" the worker said.

Other undocumented workers in Indiana told 13 Investigates the same thing. Their families are collecting tax refunds for children who do not live in this country. Several of the workers told WTHR they were told it was legal for them to claim the tax credit for a child who does not live in the United States.

Stop here.

So what Segall uncovered is massive tax fraud by illegal immigrants through the use of the Additional Child Tax Credit.

Segall then goes to a man who, barely a year later, would become a familiar face to Americans. The Inspector General of the Treasury Department, Russell George. George, on camera, says this of his repeated warnings to the IRS about this problem:

"The magnitude of the problem has grown exponentially," said Russell George, the United States Department of Treasury's Inspector General for Tax Administration (TIGTA).

And he says the IRS has known about the problem for years.

George has repeatedly warned the IRS that additional child tax credits are being abused by undocumented workers. In 2009, his office released an audit report that showed ITIN tax filers received about $1 billion in additional child tax credits. Last year, the inspector general released a new report showing the problem now costs American taxpayers more than $4.2 billion.

"Keep in mind, we're talking $4 billion per year," he said. "It's very troubling."

What George finds even more troubling is the IRS has not taken action despite multiple warnings from the inspector general.

"Millions of people are seeking this tax credit who, we believe, are not entitled to it," said the inspector general. "We have made recommendations to [IRS] as to how they could address this, and they have not taken sufficient action in our view to solve the problem." 

Stop again.

After noting that filings for the ACTC have soared since 2001, the cost skyrocketing from $161 million in 2001 to $4.2 billion -- say again, billion -- in 2010, Segall goes to the IRS for comment.

What he gets is this:

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.

That was all. Repeated requests for on camera interviews with IRS officials were denied. Period.

Inspector General George, however, took immediate issue with that statement issued by the IRS. Reports Segall:

George disagrees with that position and believes the IRS should be doing more to prevent undocumented workers from getting billions in U.S. tax dollars.

“The IRS is not doing something as simple as requesting sufficient documentation from people seeking this credit,” he said. “Once the money goes out the door, it’s nearly impossible for the IRS to get it back.’”

End of story.

What does this one snapshot of massive tax fraud captured so vividly by reporter Segall have to do with Senator Rubio and Congressman Ryan?

Everything.

Senator Rubio is in fact aware of the problem and has introduced legislation to stop the fraud. For this he has been attacked by Hispanic left-wing activists as reported here in the Miami Herald in May of 2012. So too is Congressman Ryan aware of the problem and, in this May 2012 story from WTHR Bob Segall reports:

“This is where our taxpayer money is going, to the [additional] child tax credit,” said Rep. Paul Ryan (R-WI) Thursday morning during Congressional debate. “One investigation in Indiana said illegal immigrants in Indiana are getting $29,608 for 20 children they claimed for the tax credit who live in Mexico and have never visited the United States before!”

Rep. Ryan, chairman of the House Budget Committee, wants tax credits for illegal immigrants stopped, and so do many other lawmakers who saw WTHR’s investigation. They debated it Thursday morning on the floor of the House after being bombarded by phone calls and e-mails from constituents who watched the Eyewitness News report online.

Now.

Here’s the problem -- and it’s potentially a very big problem for Rubio and Ryan.

The two men, Rubio in the Senate as a member of the so-called Gang of Eight, and Ryan in the House, have aggressively gone out front on the issue of immigration.

Ryan has even declared that "I will debate anybody who tries to suggest that these ideas that are moving through Congress are amnesty. They're not. Amnesty is wiping the slate clean and not paying any penalty for having done something wrong."

Over at National Review Mark Krikorian calls the Florida Senator’s Gang of Eight bill “Rubio’s Amnesty” in this piece and says this of the Rubio Senate bill:

The result of all this is S.744, a sprawling, 844-page measure legalizes most of the illegal population (plus many who were deported and are currently living abroad), promises tougher enforcement in the future, and hugely increases all forms of legal immigration, low- and high-skilled, temporary and permanent…..

Then we got to see the actual text of the legislation. Rubio’s promised provisions are absent. Regarding back taxes, for instance, the bill requires only that applicants “satisfy any applicable federal tax liability” that has previously been “assessed” by the IRS. But a tax is “assessed” only after a tax return has been submitted or after the IRS has conducted an audit. Since neither of those things happens with illegal immigrants working off the books, there aren’t any back taxes to be paid.

The fine for legalization is small — just $500 up front and $500 paid in installments, in return for lifetime legal access to the U.S. labor market. And while $500 can be a lot for an illegal immigrant, in a certain sense it isn’t a fine, since the money would go into a slush fund for DHS to dole out to groups such as La Raza, which are in turn to provide services for the very amnesty beneficiaries who paid the fines. (Conservative writer John Fonte has called this the Alinsky Fund.) Even such a modest penalty is absent for crooked employers. They get amnesty for free — amnesty from prosecution for knowing employment of illegal aliens, non-payment of wages, non-payment of payroll taxes, and facilitation of identity theft.

As for learning English, the language requirement applies only to already-amnestied immigrants seeking the upgrade to full green card, and even then, requires only enrollment in a class, not demonstration of actual proficiency (which is what is required for citizenship).

Moreover, the bill provides for a huge increase in legal immigration — and not just increased numbers but increased complexity, in a system already excessively complex. It has special provisions for guest workers, farm laborers, and foreign technology workers, doctors, and nurses, as well as retirees, entrepreneurs, and foreign students graduating with technical degrees. The Schumer-Rubio bill simply seeks to placate every interest group at the table by handing out more visas. Numbers USA has estimated the number of green cards that would be issued during the first decade of the bill’s operation at 33 million. About one-third of those would be illegal aliens receiving amnesty, so new immigration would go from about 1 million per year to 2 million.

…Finally, securing the Mexican border. The benchmark given in the bill is called “effective control” and means surveillance of 100 percent of the border and apprehension of 90 percent of attempted infiltrators. This is absurdity many times over.

So.

What does the reality of the Rubio bill, and the aggressive defense of Ryan have to do with that year-old investigative piece out of Indiana?

Everything. And while we like both Senator Rubio and Congressman Ryan, their actions raise troubling red flags both on the immigration bill and their respective potential runs for president in 2016.

Why?

At the core of the Indiana story about tax fraud by illegal immigrants is yet again the realization that Big Government has gone off the rails. It is so far from the original vision of the Founders as expressed in the Constitution as to be hell-and-gone.

What the Indiana story of massive IRS fraud by illegal immigrants vividly illustrates is yet another story of corruption and government gone wild. It is the same story as the IRS -- Tea Party scandal. It is the same story as the NSA-Edward Snowden issue. It is the same story as Benghazi. It is the same story as State Department cover-ups of tales of State Department employees involvement with prostitutes, sexual assaults, and illegal drugs.

Time and time and time again this always comes back to the incompetence and/or corruption of a government that is seen as being run by arrogant mandarins of the ruling class elite.

Knowing all of this, both Rubio and Ryan are out there actively selling the idea that this time government will get it right. That this time their solutions to an out-of-control illegal immigration problem-- which relies 100% on a Big Government that has failed over and over and over again and can't even manage to control the border -- are going to work. Really. Honest.

In truth? This is nonsense on stilts.

Both men are in the process of developing the immigration reform issue into a serious credibility problem with their own conservative base.

Nor is the immigration issue helped when Senator Lindsey Graham says the whole point of the exercise is to “get back in the good graces” of Hispanics. (Note: this is the same Senator Graham who went after Pennsylvania conservatives -- Pat Toomey in particular -- for allegedly driving then-GOP Senator Arlen Specter from the party. Graham’s candidate: liberal ex-Governor Tom Ridge. Suffice to say, Toomey won. Graham’s notion that a conservative was a loser in Pennsylvania was flat dead wrong.)

When Congressman Ryan hotly declares that the “bipartisan” immigration bill is not amnesty -- and the bill is revealed to be more of the same of the 1986 Reagan immigration bill -- which Reagan himself considered to be amnesty -- his credibility plunges.

The other day in the Wall Street Journal, Karl Rove tried to pass off a version of this same idea and was instantly challenged in the WSJ by former Reagan Attorney General Edwin Meese III. Wrote Meese, bold print for emphasis mine:

Karl Rove's recollection of the 1986 Immigration Reform and Control Act ("Immigration Reform and the Hispanic Vote," op-ed, June 6) is, shall we say, highly selective. That law, he writes, "essentially told those here illegally that if they had arrived in the U.S. prior to 1982 and wanted to become citizens, simply raise your right hand." He asserts that the Gang of Eight bill is different because it "has plenty of penalties and hurdles for those here illegally who seek citizenship."

Well, I was there in '86. I read that bill carefully. (We did that back then.) And I can tell you that Mr. Rove's blithe description of the bill is way off the mark.

The 1986 act didn't turn illegal immigrants into citizens on the spot. It granted temporary resident status only to those who could prove they had resided continuously in America for five years. After 18 months, their status could be upgraded to permanent residency, and only after another five years could they become U.S. citizens.

But advancement to citizenship was not automatic. Immigrants had to satisfy various requirements along the way. They had to pay application fees, learn to speak English, understand American civics, pass a medical exam and register for military selective service. Those with convictions for a felony or three misdemeanors were ineligible.

Sound familiar? It's pretty much the same "penalties and hurdles" set forth by the Gang of Eight. Today they call it a "roadmap to citizenship." Ronald Reagan called it "amnesty."

The '86 reform bill also had supposedly "rigorous" border security and immigration law enforcement provisions. So how did that pan out? On the day Reagan signed "comprehensive" reform into law, only one thing changed: Millions of unlawful immigrants gained "legal" status. The promised crackdowns on security and enforcement never happened. Only amnesty prevailed.

Since the '86 amnesty, the number of illegal immigrants has quadrupled. That should teach Congress a very important lesson: Amnesty "bends" the rule of law. And bending the rule of law to reach a "comprehensive" deal winds up provoking wholesale breaking of the law. Ultimately, it encourages millions more to risk entering the country illegally in the hope that one day they, too, might receive amnesty. 

In other words, what Meese is saying here is that what he sees ahead is a government that refuses to learn from experience when dealing with immigration -- and learning from experience is basic to conservatism.

Increasingly and dangerously Rubio and Ryan are being seen as sons of the Republican Establishment who, if they ever were elected president, would spend their time in Bush-like tinkerings at the margin of Big Government when not expanding it outright. Their inability to learn from the Reagan immigration experience is a startling admission that perhaps neither man is as conservative as once thought.

Are they good men? Yes. Talented and conservative in many respects. But alas, what is on display right this minute from both is the same old Republican Establishment flirtation with Big Government.

Trust the government, say Rubio and Ryan. Really. This time it will work. Honest.

The problem?

After an endless series of stories about incompetence or outright corruption in one government scandal after another, not to mention the massive failure of the 1986 Reagan immigration law, there are conservatives aplenty who listen to Marco Rubio and Paul Ryan and simply don’t believe a word they say on immigration.

Not good.

Photo: UPI 

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About the Author
Jeffrey Lord is a former Reagan White House political director and author. He writes from Pennsylvania at jlpa1@aol.com.