WRAL Investigates

Investigators: Child tax credit allows fraudsters a chance to cheat

Posted October 25, 2012
Updated November 1, 2012

— North Carolina is part of what federal investigators call a nationwide tax fraud scheme among suspected illegal immigrants. It’s a system auditors believe invites fraud and abuse topping more than $4 billion a year.

WRAL Investigates found federal reports dating back more than a decade that warned the Internal Revenue Service about the problem. Yet, the IRS has done little to fix it.

Investigators uncovered more than 1,000 tax returns linked to eight addresses in North Carolina last May, with refunds worth more than $5 million.

Those tax fraud schemes are a problem across the U.S. and include refunds given for children, many of whom don't live in the U.S. or don’t even exist, according to the Treasury Inspector General for Tax Administration.

U.S. citizens’ Social Security numbers are used when processing tax returns. Illegal immigrants, or people in the U.S. on work visas, use an Individual Taxpayer Identification Number, or ITIN.

Those ITINs are at the center of the problem, allowing suspected illegal immigrants to get billions of dollars in tax credits for children who don't live in America, according to the Treasury Inspector General.

For taxpayers, the child tax credit offers welcome relief to families, but in a system where those children are rarely verified, the credit also allows the chance to cheat.

Federal investigators say an apartment complex in Charlotte played a major role in a $5 million tax fraud scheme. Two women, Candida Mayo Figueroa and Cathy Lee Cisneros, were arrested and charged with coordinating hundreds of bogus tax returns with fake names that flooded into a handful of mailboxes.

The IRS was tipped off after the U.S. Postal Service noticed a flood of “suspicious mailings from the U.S. Treasury Department appearing to contain Treasury checks” hitting the same mailboxes, according to court records.

Investigators tied at least 17 tax returns, totaling more than $62,000 in refunds, to a Charlotte apartment Figueroa leased. At another apartment nearby, investigators discovered 153 returns valued at $713,000 in refunds. Another address in the same apartment complex had 236 returns worth $1.1 million in refunds.

Investigators say the clustered addresses and a bank of mailboxes made for easy access to those refunds. An apartment complex manager told investigators Figueroa was seen taking mail from all three apartment mailboxes.

Down the road at another apartment complex, the tax scheme got bigger, according to investigators, who traced 398 returns to two apartments, totaling more than $1.9 million in additional child tax credits with no guarantee that the children existed or lived in the U.S.

2110 Arrowcreek Drive, Apt. 103236$1,100,648
2008 Arrowcreek Drive, Apt. 104153$713,110
9053 Arborgate Drive, Apt. C206$980,248
9053 Arborgate Drive, Apt. E192$947,557
7825 Royal Point Drive, Apt. 10217$62,621

Cisneros also owned a tax preparation business in a strip mall. A search of that business and her home turned up more returns, dozens of uncashed U.S. Treasury checks, a FedEx box containing dozens of birth certificates of Mexican origin and a notary public stamp and signature stamp listing Cisneros as the notary, bringing the fraud case to more than $5 million.

Individual Taxpayer Identification Number (ITIN) card Child tax credit allows fraudsters a chance to cheat

Figueroa's attorney, Harold Cogdell, says his client is not guilty and does not have the skill set to pull off such a scam. She and Cisneros were being held on immigration detainers. Both pleaded not guilty initially, but later changed their pleas to guilty. They will be sentenced at a later date. 

Despite Cogdell’s claim that his client is incapable of the tax fraud scheme, one group has been warning the IRS for years that ITIN fraud is a problem and is fairly easy to cash in. The battle is documented in four audits from the Treasury Inspector General for Tax Administration.

More than a dozen years ago, auditors wrote, "...providing illegal aliens with valid ITINs allows for certain tax advantages and increases the potential for fraud." Ten years later, they identified $1.8 billion in additional child tax credits to ITIN filers, noting those refunds went to "individuals with no tax liability."

The IRS defended its interpretation of the tax code, which states that illegal immigrants who pay no taxes are eligible for the tax credits. Filtering out who is not eligible is the problem.

“These applications for ITINs coming from the same address, thousands of applications … or thousands of returns coming from the same address – that screams fraud,” said former federal prosecutor Clay Wheeler, who specializes in tax fraud cases and currently works for Kilpatrick, Townsend and Stockton law firm in Raleigh. “It looks to me like the ITIN system has a lot of holes in it that need to be fixed … You can't help but be angry about that kind of fraud.”

A chart in the Treasury Inspector General’s July 2011 report shows a rapid rise in tax refunds that went to ITIN holders, who were four times more likely to request the child tax refund compared with those with Social Security numbers. In five years, those refunds quadrupled. Despite that, the IRS didn’t budge and said it planned to keep paying until Congress tells it to stop.

“It's an agency that's subject to a lot of political pressures from both sides,” Wheeler said.

An IRS spokesman declined to comment specifically on WRAL Investigates' report, but pointed to a June 22 statement about strengthening ITIN application requirements.

This year, the Treasury Inspector General found more problems, noting an undisclosed Raleigh address that received more than 2,400 tax returns worth more than $7 million. It called the IRS's ITIN review process so deficient that the same person could easily get multiple numbers.

“An IRS program that allowed other people, non-IRS employees, to certify the documents for getting these ITINs – that seems like a recipe for disaster,” Wheeler said.

When it comes to state tax returns, WRAL Investigates found the North Carolina Department of Revenue has taken steps to identify bogus ITIN returns. Canaan Huie is an attorney for the state agency, which has a team that specializes in state ITIN returns.

“Generally speaking, what we look at are the number of dependents that are being claimed and the size of the refund that’s being requested,” Huie said. “We did identify that this is a pretty significant area of non-compliance.”

While the additional child tax credit comes from federal money, the state spends extra time on ITIN returns. In 2010, nearly 6,000 ITIN tax returns were reviewed, 85 percent of which were adjusted, saving North Carolina taxpayers more than $4.7 million.

“Those results have been pretty good,” Huie said.


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  • storchheim Oct 26, 2012

    bill0, you do understand the difference between "fraud" and "completely legal", don't you?

  • FE Oct 26, 2012

    IRONY - Today I received a letter from the IRS questioning claiming my college age daughter as a dependent. I paid all of her support, she made minimal income, and did NOT claim herself on her own 2011 tax returns.

    It's good to know the IRS is so on top of things.......

    (I imagine it won't be long until NC Dept of Revenue sends me a "me too" letter which will also require a written response.)


  • Weetie Oct 26, 2012

    Exactly right Mollers!

  • bill0 Oct 26, 2012

    "And that excuses the illegals and fraudsters somehow?"

    Thanks for not reading my post. If you did, you would notice the first paragraph outlining how to punish them.

    The fact remains that the lobbyist who are taking 8 times more money are the BIG problem. What is more scandalous is that their actions are perfectly legal because they have bought off the politicians to make it that way. Even worse, we have a presidential candidate promising to make those investment earnings completely untaxed.

  • DontVote4LiarsCheatsOrThieves Oct 26, 2012

    Why in the devil are we accepting tax returns from ILLEGAL aliens? Why isn't our government using those tax returns to ferret them out, charge them with being here illegally, making them serve their time for that crime, and then driving them to the nearest border and handing them over to the authorities in Mexico, even if they weren't from Mexico to begin with?

    Instead, we seem to welcome them with open arms even though they've showed disrespect for our country by ignoring its laws.

    What kind of sense does that make???


  • Mollers Oct 26, 2012

    Get rid of the Child Tax credits altogether. No one should be compensated for having children. Either you can afford them or not.

  • pat7 Oct 26, 2012

    Thank you goverment for support these wonder dead beats the suck the life out of the hard working amercians that pay taxes , I hope you go after these wonderful people

  • lumberman Oct 26, 2012

    Now the IRS was warned about this 10 years ago. And nothing in BIG government was done about it. What do you think it is going to be like if Obama care goes in to effect. These numbers will be nothing compared to what it is going to be like with the givernment running health care.

  • bill0 Oct 26, 2012

    First - I have no sympathy for tax cheats and think they should be prosecuted. If they are here illegally and running these type of schemes, they should be deported and banned for life from reentering the US.

    However, lets look at the scale. This fraud is costing $5 billion per year. Compare that to the cost of the completely legal tax dodge of taxing earnings from investments at lower rates than earnings from actually working. That is $38 billion dollars this year. So basically, a handful of powerful lobbyist are cheating our country 8 times more than every illegal and "fraudster" combined.

  • gingerlynn Oct 26, 2012

    But if you happen to accidentally underwithhold just a little bit and owe the IRS you better pay it back right away or they will quickly slap a lien on your house and not hesitate to freeze your bank accounts. What is wrong with this picture?????