That was the message from IRS Commissioner John Koskinen to the Senate Finance Committee during a recent hearing on cybersecurity failures and other problems at the Internal Revenue Service.
“These are cases in which someone uses someone else’s identity, their name or their Social Security number, to get a job illegally,” Sen. Dan Coats, a Republican from Indiana, explained.
The IRS knows but doesn’t care.
Sen. Coats was a bit frustrated. “The IRS continues to process tax returns with false W-2 information and issues refunds as if they were routine tax returns, saying, ‘That’s not really our job,’” he said.
Although the Social Security Administration notifies the IRS when a name does not match a Social Security number, these notifications are ignored. IRS employees are not allowed to tell the real holder of the Social Security number that someone is using their identity, and nobody alerts employers that they have submitted false W-2 information.
Last year, the IRS identified 200,000 new cases of employment-related identity theft.
Koskinen winked at the problem. Sometimes Social Security numbers are “borrowed from friends or acquaintances,” he said, “and people know they’ve been used. Other times they don’t.”
The priority for the IRS, Koskinen told the committee, is “collecting those taxes.”
That’s very misleading.
Millions of low-income people in America don’t owe any income taxes and pay little or nothing to the U.S. Treasury during the year, yet they still receive thousands of dollars in a “tax refund.”
That’s because over the last 40 years, Congress created a financial assistance program which is run through the Internal Revenue Service. For those who qualify, the Earned Income Tax Credit can be worth over $6,000, the child tax credit is worth $1,000 per child, and education credits are worth thousands more. These credits are fully or partially “refundable.”
Most people assume that everyone who receives a tax refund is simply getting back the money they overpaid during the year. Not so.
“Refundable” tax credits are paid out in a tax refund, even if no taxes at all were paid in. The money comes from the U.S. Treasury; in other words, from other taxpayers.
These annual “tax refunds” are routinely worth thousands of dollars, which is why you see storefront tax preparers pop up in low-income neighborhoods every January, why retailers like Walmart offer to cash tax refund checks for customers who don’t have bank accounts, and why there’s so much fraud — over $15 billion in fraudulent refunds for 2014 alone.
However, it’s perfectly legal for undocumented workers to claim the child tax credit and the education credit and to receive a taxpayer-subsidized tax refund.
The government knows who’s working illegally, because the IRS gives undocumented workers an Individual Taxpayer Identification Number, or ITIN, that can be used to file a tax return. An ITIN can’t be used to get a job, because employers aren’t supposed to hire unauthorized workers. Hence, stolen Social Security numbers on the W-2s of people who file their tax returns with ITINs.
The IRS, which will happily send you a threatening letter if you fail to report 12 cents in interest income, has no interest at all in enforcing the laws against working in the United States without legal authorization.
They just process the returns and send out the refunds.
They know they are sending money to people who filed false W-2 forms with somebody else’s Social Security number.
And now, so do you.