U.S. tax number abuse rises - East Valley Tribune: News

U.S. tax number abuse rises

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Posted: Sunday, March 28, 2004 5:39 am | Updated: 5:36 pm, Thu Oct 6, 2011.

Each Tuesday and Thursday, the Internal Revenue Service hands out the special numbers that allow hundreds of thousands of illegal immigrants to file federal and state tax returns each year.

On a recent Thursday, Dianes Esparza of Queen Creek drove to the Tempe IRS office at Baseline Road and Mill Avenue to get a number. The undocumented worker said filing her taxes would be an investment in her future in the United States in case an amnesty agreement is reached.

"If there is some kind of agreement, I understand from talking to immigration that at minimum I have to have paid taxes to the government to show them we are here working," she said.

Before she can file that return, though, she needs an IRS Individual Taxpayer Identification Number, also called an ITIN.

First issued by the IRS in 1996, the nine-digit numbers have become a boon to undocumented workers. Workers can collect tax refunds on withheld wages with an ITIN — even if the attached wage reporting form (W-2) lists a stolen or made-up Social Security number. The workers also use the ITINs to reap tens of millions of dollars in refundable tax credits.

Against IRS wishes, the numbers also are increasingly used as a form of identification to open bank accounts and obtain driver’s licenses.

Government officials have concluded the ITINs are vulnerable to abuse and have grown out of control. But no one knows just how — or whether — to stop the program.


Critics call the program an example of a contradictory U.S. immigration policy. While the IRS allows illegal immigrants to establish an official presence in the country, other agencies seek to arrest the same people on suspected fraud and immigration violations.

"We’ve got a sort of Catch-22 here that’s really bothering," said Marti Dinerstein of the Center for Immigration Studies in Washington D.C., a anti-illegal-immigration group.

Some of the numbers are issued to residents of other countries who must file a U.S. tax return for various reasons. Most are used by illegal immigrants. In their ITIN application, IRS Form W-7, workers must declare to the IRS that they are ineligible to work in this country and ineligible for a Social Security number.

"Our definition of an individual being a resident or nonresident is totally different" than other agencies, said IRS spokesman Bill Brunson. "It applies solely for tax purposes."

The number of tax returns bearing ITINs doubled from 1999 to 2001, according to a January 2004 IRS report. The latest information shows the IRS received 530,000 returns filed by illegal immigrants in 2001. Those ITIN holders owed $495 million in federal taxes, and all but $184 million had been received in payments or reduced by tax credits.

Most ITIN-based returns include W-2 forms that list Social Security numbers belonging to U.S. citizens, IRS data shows. Undocumented workers use the stolen or made-up Social Security numbers to satisfy the hiring requirements of their employers.

Yet it is against the law for the IRS to share its documented evidence of Social Security fraud and immigration violations with other government agencies, Brunson said.

Even if the IRS could legally share that information, it is clear few — if any — illegal immigrants would file their returns if they knew it would mean certain arrest or deportation.

That, in turn, could lead to fewer illegal immigrants paying taxes — a result that would be contrary to IRS goals. No one knows exactly how much tax the 6 million to 8 million undocumented workers in the country pay each year, but experts estimate it is billions of dollars. Income tax, as well as property and sales tax, contributes to the total.


In Arizona, ITIN holders filed 24,371 state returns in 2002, said state revenue department spokesman Dan Zemke. Of the $4.1 million in state taxes those ITIN holders owed, all but $1 million had either been withheld from the employees’ paychecks or paid out in tax credits, Zemke said.

The IRS would not disclose how many federal tax returns with ITINs were filed from Arizona.

Whether or not the immigrants file a return, most have taxes withheld from their paychecks. Therefore, most ITIN holders file only when they know they will get a refund from overpaid taxes, local tax preparers said.

Rob Smith, owner of Universal Tax Service in Tempe, said that when ITIN applicants hear they will have to pay rather than get a refund, "they walk."

The ITIN program has boosted Smith’s business. He hired a Spanish-speaking employee about six years ago to help process the ITIN holders’ returns, and now about 17 percent of his clients are illegal immigrants, he said. He charges $75 to help apply for the number and process the return, he said.

Smith said ITIN applicants with children often qualify for refundable child tax credits of a few hundred dollars or more.

The IRS report states that in 2001, more than $150 million in child tax credits was paid to 190,000 illegal immigrants who owed no taxes.

However, illegal immigrants cannot receive an Earned Income Credit, nor do they receive the Social Security benefits that are withheld from their paychecks.

The situation outrages Kathy McGee, executive director of Protect Arizona Now, a proposed citizen’s initiative that would stop state services from being offered to illegal immigrants. The undocumented workers don’t deserve tax credits or refunds, even when they overpaid their taxes, she said.

"They don’t deserve anything except to be deported," she said.


Critics of the ITIN also point out that trouble with the numbers expands when they are used as identification.

At a congressional hearing March 10 on the ITINs, experts testified the numbers could be misused by criminals or even terrorists to create phony identification. Though the application for a number requires immigrants to submit foreign identification such as a matricula consular card or birth certificate, the IRS does not check the validity of those documents.

Federal investigators who submitted bogus identification to the IRS found they could get an ITIN with no problem — then they used the ITIN to obtain a driver’s license and voter registration card in Virginia, one expert testified. Some options on how to deal with ITIN problems were proposed at the hearing, and Congress will continue to debate what to do with the program.

Under pressure to curb ITIN abuses, the IRS changed the system slightly this year to help stop the numbers from being used for anything but tax purposes. Until this year, people could apply for and receive an ITIN without also submitting a tax return. Only 75 percent of the 7.3 million ITINs issued since 1996 have ever showed up on a tax return, indicating the applicants may have had other uses in mind for the numbers.

The IRS has also tried to discourage states from accepting the ITIN in place of a Social Security number to get driver’s licenses. Last year, the IRS sent letters to the motor vehicle departments of all 50 states, warning officials that ITINs were not valid identification.

New Mexico — one of six states that accept the ITIN for driver’s license applicants — chose to ignore that letter, said Kathleen Baca, spokeswoman for New Mexico’s MVD. The state has issued about 7,500 driver’s licenses to apparent illegal immigrants since it began taking the ITIN last year, she said.

Other states "should do everything they can to bring people into the system instead of saying ‘We don’t want to know who you are,’ " she said.

Utah has accepted the ITIN for driver’s license applicants for five years, said Utah MVD deputy director Bart Blackstock. The state issued 15,781 licenses to ITIN holders in fiscal 2003, he said.


Arizona requires driver’s license seekers to prove legal residence in the state — unless the applicant holds a driver’s license from another state. In that case, the person simply surrenders the old driver’s license and receives an Arizona license.

A bill making its way through the Legislature this session would prohibit that practice when the driver’s license was obtained in a state that did not require the holder to prove his or her legal residency.

State Rep. Andy Biggs, RGilbert, said he sponsored the bill in order to help "preserve the rule of law."

"These folks are here illegally — they are already in violation of the law," Biggs said.

On the other side, Baca and other advocates for illegal immigrants said they believe the immigrants already in the country ought to be accepted as full members of their community. The ITIN can help do that, advocates said.

"Most of these folks, these are folks who are hardworking immigrants," said Maria Elena Hincapie, staff attorney for the National Immigration Law Center in Los Angeles. "They want to comply with other laws and be an upstanding citizen of the United States. And paying taxes if a really important part of that."

By the numbers

530,000 Federal tax returns filed by illegal immigrants in 2001.

$151 million Amount of tax credits paid to 190,000 illegal immigrants in 2001 who owed no taxes.

24,371 Number of state tax returns filed by holders of taxpayer ID numbers in Arizona in 2002.

7.3 million Number of taxpayer ID numbers issued by IRS since 1996.

25 Percentage of taxpayer ID numbers that have never shown up on a tax return.

SOURCE: Internal Revenue Service, Arizona Department of Revenue TRIBUNE

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