IRS Pays Out Billions in Fraudulent Tax Credits, Ignoring Warnings from Whistleblower and Inspector General

by Hans Bader on May 7, 2012

in Legal, Politics as Usual, Zeitgeist

Like whistleblowers, inspector generals often tell the government things it does not want to hear, or let the public know about how government agencies have wasted their money or violated the law. Recently, an NBC reporter in Indianapolis chronicled how the IRS has likely paid out billions in refundable tax credits to undocumented immigrants for dependents they cannot legally claim for this purpose, such as non-citizen nieces and nephews back in Mexico, and has refused to do anything about the problem. As the reporter noted, the IRS ignored warnings from a whistleblower and Inspector General for Tax Administration Russell George. (In one case, a household with $14,000 in income paid no taxes, and got back a refund of $10,000 due to child tax credits. In another case, 20 dependent children were listed for a single address in Indiana, claiming $1,000 for each child.  Such payments are many times more common today than they were in 2009.) The Obama administration is not interested in doing anything about these abuses.

The inspector general who warned about these abuses, Russell George, was appointed to his position in 2004, after previously working for Steve Horn (R-Calif.), one of the most moderate (and socially liberal) GOP members of the House. I wonder if Inspector General George feels uncomfortable right now, knowing that another inspector general hired during the Bush administration, Gerald Walpin, was summarily fired by President Obama (and falsely depicted as senile) after he exposed wrongdoing and fraud by a California politician who staunchly backed Obama.

As I noted earlier, the Obama administration has left an unprecedented number of inspector general positions vacant, thus eliminating potential watchdogs against waste, fraud, and wrongdoing at federal agencies. (The recent GSA scandal involving blatant waste and misuse of taxpayer dollars was uncovered by that agency’s inspector general.)

One final note: there is nothing illegal about an undocumented immigrant tax-filer claiming a personal exemption for kids in Mexico or Canada, which is expressly permitted by IRS rules for kids located in those two countries (although such dependents’ eligibility may effectively be impossible to verify, since they lack social security numbers). It’s the additional refundable child tax credit for such non-citizen children that they aren’t eligible for. (Other refundable credits, such as the EITC, are also subject to significant rates of fraud — amounting to billions of dollars annually – which is one reason that many economists dislike refundable tax credits in general.)

Comments on this entry are closed.

Previous post:

Next post: