October 5, 2001
Via Regular Mail and Facsimile: (IRS: 202-622-4733; TIGTA: 202-927-7323)
| Mr. Charles Rossotti | Mr. David C. Williams |
| Commissioner | Inspector General for Tax Administration |
| Internal Revenue Service | 1125 15th Street, N.W. |
| 1111 Constitution Avenue, N.W. | Room 700A |
| Washington, D.C. 20224 | Washington, D.C. 20005 |
Re: IRS Identification of and Improper Refunds to Illegal Aliens
Dear Commissioner Rossotti and Inspector General Williams:
The recent tragic events involving terrorism on U.S. soil have implicated several foreign nationals who used U.S. immigration documents -- either bogus or expired -- to illegally remain in this country. As Ranking Member of the Senate Committee on Finance (Committee), I share your commitment to overseeing that the Internal Revenue Service (IRS) works well with other federal agencies, such as the Immigration and Naturalization Service (INS) and the Social Security Administration (SSA), to identify illegal aliens. [For purposes of this inquiry, I define "illegal aliens" to include those individuals who either entered the U.S. surreptitiously (i.e., entered without inspection), or overstayed the term of their non-immigrant visas (e.g., tourist or student visas.] At a minimum, IRS' receipt and transmittal of information about illegal aliens should prevent them from receiving government benefits, such as tax refunds, to which they are not entitled.
Recently, the Treasury Inspector General for Tax Administration (TIGTA) made recommendations to the IRS that, if implemented, might protect potential revenue totaling $652 million annually. TIGTA's audit found that each year the IRS pays a substantial tax credit to non-entitled individuals who use Social Security Numbers (SSNs) not valid for work in the United States. SSA issues these "nonwork" SSNs to individuals, many of whom are not U.S. citizens, to obtain federal benefits but not as a means to obtain work in this country. According to TIGTA, each year an average of 334,000 individuals file returns with nonwork SSNs to obtain the Earned Income Credit (EIC), which is a tax credit for certain people who work and have earned income in an amount less than $31,152 a year. In other words, IRS improperly issues hundreds of millions of dollars annually to hundreds of thousands of people based on their income earned by working in the U.S. even though they are not authorized to work here in the first place.
TIGTA reports that each year the IRS pays an average of $700 million in potentially erroneous EIC claims because IRS does not have a process to identify and stop those tax returns before the refunds are issued. In August 1996, IRS was authorized to deny EIC claims to individuals who file tax returns with nonwork SSNs issued to obtain federal benefits. Despite this authority, individuals can still file tax returns with nonwork SSNs to claim the EIC without IRS stopping their tax returns for review to ensure entitlement to the claim. In fact, for Tax Years 1997 to 1999, the IRS paid more than $2 billion in EIC to individuals who filed tax returns with nonwork SSNs.
In addition, non-entitled individuals may incorrectly receive notices from the IRS informing them that they may be entitled to the EIC. In its Letter Report (Reference Number 2001-40-185), TIGTA relates the example of a tax professional who wrote the IRS and explained that he had prepared his client's tax return correctly with no claim for the EIC because he knew that the qualifying children had nonwork SSNs. However, when the IRS processed the tax return, it sent the client an EIC eligibility notice stating that the client may qualify for the EIC. The client returned to the tax professional and informed him that the IRS guidance "indicates he/she is eligible for the EIC and that he/she will claim the credit because he/she was told to by the IRS[.]"
Furthermore, while IRS receives data from SSA to identify many of the nonwork SSNs issued to individuals since 1980, IRS does not receive available data that could help it identify the approximately three million nonwork SSNs issued before 1980. Without the necessary data to identify the use of these SSNs, IRS cannot assess the revenue losses associated with erroneous claims for the EIC. Clearly, this is problematic and must be corrected not only to maintain fiscal responsibility, but also for our country's national security interest of identifying illegal aliens.
Accordingly, I appreciate your responses to the following questions. For any question requesting specific numerical information, please provide a numerical estimate if you cannot provide an exact figure.
1.Describe IRS' programs and operations to identify illegal aliens. Explain how IRS uses this information. Identify areas of improvement.
2.Describe IRS' programs and operations to share information with INS and SSA. Identify areas of improvement.
3.Describe IRS' efforts to coordinate with other federal and state governments to identify illegal aliens. Also, describe the funding and personnel resources made available by IRS in carrying out this effort. Further, identify areas of improvement.
4.Describe the resources IRS currently dedicates to investigations to identify illegal aliens. Also, describe IRS' plans, if any, to increase these resources in the long- and short-term as defined by your agency.
5.Describe how IRS determines whether illegal aliens who apply for tax credits and other benefits are entitled to same. Identify areas of improvement. Also, for the past three (3) years, please provide the following information:
a.State the number of illegal aliens who have applied for tax credits or other benefits;
b.State the number who have received same;
c.State the amount of tax dollars refunded to illegal aliens as a result of these tax credits or other benefits; and
d.State the amount of funds improperly sent by IRS to illegal aliens who did not qualify for the tax credit or other benefit.
6.Evaluate how well present federal law enables IRS to perform its responsibilities with regard to identifying illegal aliens. In this regard, identify any legislative or regulatory means to improve IRS' ability to perform its responsibilities.
7.For IRS only: Describe how IRS intends to initiate a process to identify nonwork SSNs and stop EIC refunds from being issued to non-entitled individuals. Please include the following elements in your response:
a.Describe how IRS intends to work with SSA to receive available data that could help IRS identify the approximately three million nonwork SSNs issued before 1980.
b.Describe how IRS intends to work with SSA to receive available data to distinguish those nonwork SSNs issued to obtain federal benefits which do not qualify for the EIC from those nonwork SSNs issued for other reasons that may qualify to claim the EIC
I appreciate your complete written responses by November 12, 2001.
Sincerely,
Charles E. Grassley
Ranking Member
CC: (Via Facsimile, SSA: 410-966-3168; SSA OIG: 410-966-9201):
The Honorable Larry G. Massanari, Acting Commissioner, Social Security Administration
The Honorable James G. Huse, Jr., Inspector General, Social Security Administration