Investigative Reporter Bob Segall, at Channel 13 Indianapolis, did the above story claiming that a "tax loophole" was permitting "undocumented workers" to collect billions of dollars ($4.2 billion last year) from the Treasury. Supposedly a tax-preparer with "thousands of examples" was blowing the whistle on this unfair scheme whereby filers of non-resident tax returns (Form 1040NR) were claiming their nieces and nephews living in Mexico as eligible to be counted using Form 8812. We have lots of tax cheats, one of whom heads the IRS and now some 2 million illegal aliens.
The loophole is called the Additional Child Tax Credit. It's a fully-refundable credit of up to $1000 per child, and it's meant to help working families who have children living at home. Eyewitness News has found many undocumented workers are claiming the tax credit for kids who live in Mexico.First of all, there is no tax loophole. IRS Publication 972, "Child Tax Credit" defines among other things that a qualifying child for purposes of the child tax credit must be (at a minimum) a US resident alien.
Example: Your 10-year-old nephew lives in Mexico and qualifies as your dependent. Because he is not a U.S. citizen, U.S. national, or U.S. resident alien, he is not a qualifying child for the Child Tax Credit.So what we have here is tax fraud pure and simple, as the "whistle blower" reported.
"We're talking about a multi-billion dollar fraud scheme here that's taking place and no one is talking about it," [the] tax preparer said.I would also like to note that the tax credit is not "fully refundable" - as a matter of fact it not a refund at all and the credit is subject to some limitations. The Child Tax Credit is a part if the so-called Earned Income Tax Credit (EITC) and can result in a payment by the Treasury of up to $1,000 per qualifying child subject to limits affected by the beginning amount of EITC. Understand that the tax-filer did not have to first pay the IRS since this is not a tax refund.
Contrary to the tenor of the WTHR story line, the bad guys here are not necessarily the IRS auditors, although it would be nice if the Obama regime could get past "selective enforcement" policies. Indeed the problem begins with our "Whistle Blower" and his ilk. The IRS has issued temporary regulations applicable to for-fee tax-preparers that now requires the following actions on their part in order to comply with Due Diligence guidelines associated with the EITC code.
To qualify for earned income credit, the primary facts the return preparer is to establish are:Bob Segall's tax-professional/informer must actually sign the Form 8867 checklist which subjects the return-preparer to the guidelines above. So I ask, who is the law-breaker? And the answer is: both the tax-filer and the tax-return-preparer. However, if the story didn't contain all these knee-jerk observations about an anonymous tax consultant who fears reprisals and that Individual Taxpayer Identification Number (ITIN) that substitutes for a social security ID; and the attempts to change a law that does not need changed; and a Treasury Department Inspector General crying in his beer - then nobody would watch Channel 13. I know the feeling well, because you and I, dear reader, are the only people who will know the boring truth.
- Verify name of taxpayer and child
- Verify accuracy of the social security numbers
- The relationship of child to the taxpayer
- Age of child
- Taxpayer is citizen or resident alien
- Child is resident of United States
- Child lived in the taxpayer’s residence more than half the year
- Taxpayer provided for the costs of the residence more than half the yearIn the past, preparers have relied upon the oral evidence provided by the client. The new due diligence requirement appears to make it necessary to have a routine in place for requesting copies of documents from clients. Another key factor in determining due diligence is the asking for alternate documents when primary documents are not available. Until preparers are given better guidance, a combination of the following documents may be used as an argument to show that a preparer exercised due diligence in attempting to furnish the required information:
- Birth certificate
- Social Security card
- School records
- Insurance records
- Day care records
- Medical records
- Rental contracts
- Green Card