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Sep 08

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An alien tax loophole

With the recent debt debacle and the sparked interest in finding more revenues, tax loopholes that have furtively existed for many years are now coming out in full force.  The most recent involves individuals who are unauthorized to work in the United States receiving $4.2 billion in refundable credits.  According to an audit report released last Thursday by the Treasury Inspector General for Tax Administration (aka TIGTA),

Many individuals who are not authorized to work in the United States, and thus not eligible to obtain a Social Security Number (SSN) for employment, earn income in the United States.  The Internal Revenue Service (IRS) provides such individuals with an Individual Taxpayer Identification Number (ITIN) to facilitate their filing of tax returns. Although the law prohibits aliens residing without authorization in the United States from receiving most Federal public benefits, an increasing number of these individuals are filing tax returns claiming the Additional Child Tax Credit (ACTC), a refundable tax credit intended for working families. The payment of Federal funds through this tax benefit appears to provide an additional incentive for aliens to enter, reside, and work in the United States without authorization, which contradicts Federal law and policy to remove such incentives.

Undocumented workers are not eligible for federal benefits; however, this most recent audit concludes that federal law is nebulous on whether these workers qualify for the the ACTC.   According to the audit, this ambiguity in the law may have contributed to the $4.2 billion in credits.  The IRS claims that it lacks authority to disallow these workers the ACTC credit.  The following article provides more detailed analyses of the audits conclusions.

About the author

Nicole Liska

I am a Principal at Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I hold an ABD and MA in economics from the University of California, San Diego. I perform damages analyses and serve as a damages expert witness. My resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2011/09/an-alien-tax-loophole/

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