The IRS paid out billions in refundable tax credits to undocumented immigrant workers last year, according to a new Treasury audit.

Federal law bars illegal immigrants from collecting tax benefits, like the Earned Income Tax Credit, that can be claimed by residents with Social Security numbers. But the Treasury report found that the tax code's lack of clarity is allowing the Additional Child Tax Credit (ACTC), which reduces taxes owed by certain individuals with children, to be heavily claimed by undocumented workers; if their tax bills dip below zero, they can collect government checks. 

Even wages earned illegally in the U.S. are taxed. Individual Taxpayer Identification Numbers (ITINs) are available to people without Social Security numbers who cannot legally work in the U.S. so they can file tax returns. These ITINs have become increasingly linked to fraudulent tax claims, which helped inflate IRS payouts on the Additional Child Tax Credit from $924 million in 2005 to $4.2 billion, the report said. 

The report attributed the massive outpouring of child tax credit refunds to the 2001 Bush tax cuts and the 2009 American Recovery and Reinvestment Act, the legislation that created the stimulus program.

In response to the report, IRS officials said they would follow one of its recommendations to meet with Treasury officials to determine whether people unauthorized to work in the U.S. can collect refundable tax credits. But the IRS rebuffed the audit's second recommendation that it collect additional documentation from people claiming the ACTC, arguing that the agency lacks the legal authority to challenge such tax returns.
 
"Any suggestion that the IRS shouldn't be paying out these credits under current law to ITIN holders is simply incorrect," said IRS spokesperson Michelle Eldridge.  "The IRS administers the law impartially and applies it as written. If the law were changed, the IRS would change its programs accordingly."

Congress has been unable to pass any meaningful immigration legislation this year, but the House couldn't miss a chance to stick it to immigrants by going after their U.S. citizen children in a recent tax bill. While Americans are debating whether taxes on millionaires should be raised, the House, at least, is planning to raise taxes on the most vulnerable of American citizens - children, 42 percent of whom (31 million) live in low-income families.

The tax package denies immigrant taxpayers who file their taxes using an Individual Taxpayer Identification Number (ITIN) the ability to claim the Additional Child Tax Credit for their U.S. citizen children. This provision will impact 2 million families and up to 4 million U.S. citizen children and take away a tax credit designed to keep children out of poverty.

Child tax credits can only be claimed by those paying into the system and were designed to alleviate some of the burden that tax payment imposes on low-income, working families. Taking away this credit from tax-paying families could drive more than two million families closer to poverty.

Unauthorized immigrants are required to pay their taxes, just like all Americans. Many fulfill their tax payment obligations using an ITIN, but they are not eligible for the vast majority of benefits their tax dollars pay into. According to the Treasury Department's Inspector General, in 2010, ITIN filers reported $60 billion dollars in wages, which according to an estimate by the National Immigration Law Center means they generated an estimated $9.2 billion in payroll taxes. This revenue, which benefits us all, is ten times the amount that would be saved by stripping the child tax credit away from the children of ITIN filers.

ITIN filers are doing the right thing by paying into the tax system with little hope of collecting any future benefits for themselves. If the Child Tax Credit to ITIN filers is removed, the only ones hurt in the process will be the children.

But perhaps the alternative of legalizing de facto undocumented immigrants and implementing legalized immigration reform and thereby broadening and enhancing the tax-base is just too steep a hill for the Hill to contemplate.