WRAL Investigates

Lawmakers want to stop flow of tax refunds to illegal immigrants

Posted October 26, 2012 6:00 p.m. EDT
Updated October 26, 2012 7:06 p.m. EDT

— Members of North Carolina's congressional delegation say they want to block a nationwide tax fraud scheme among suspected illegal immigrants.

WRAL Investigates has examined reports from the Treasury Inspector General for Tax Administration that address schemes using Individual Taxpayer Identification Numbers. People in the U.S. on work visas and illegal immigrants use ITINs to file their income tax returns.

Suspected illegal immigrants are using ITINs to obtain an estimated $4 billion a year in tax credits for children who don't live in America – or might not even exist – according to the Treasury Inspector General.

Investigators uncovered more than 1,000 tax returns linked to eight addresses in North Carolina last May, for example, where refunds totaled more than $5 million.

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.

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.

Both women have pleaded not guilty but remain in jail on immigration detainers.

"It's outrageous and really unbelievable," 2nd District Congresswoman Renee Ellmers said.

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.

More than a dozen years ago, auditors wrote that "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 defends its interpretation of the tax code, which states that illegal immigrants who pay no taxes are eligible for the tax credits. Officials say they plan to keep paying until Congress tells it to stop.

"I think one would question whether any common sense was used to distribute these refunds checks," U.S. Sen. Richard Burr said.

Burr is co-sponsoring a Senate bill that would force the IRS to do a better job of making sure people who apply for ITINs are who they say they are and would tighten up rules on children claimed as dependents.

"These are taxpayer dollars that aren't going to investments in the future of this country. They're going to people ... who don't qualify for them," he said.

The U.S. House may go a step further, with two pending bills that would force the IRS to stop paying the child tax credit altogether to people who have only a taxpayer ID. Ellmers, 3rd District Congressman Walter Jones, 7th District Congressman Mike McIntyre and 9th District Congresswoman Sue Myrick are all co-sponsors on the legislation.

"When you're considering eight and 10 nieces out of the country living in Mexico with no (U.S. ties), where those individuals are filing are receiving tax dollars, that is just completely unreasonable," Ellmers said.

Burr said Congress might hold hearings in the coming months in hopes of finally tackling years of tax fraud.

"It's not discouraging. It's embarrassing," he said of the government's tardy response to the issue.