Report Says IRS Let Foreigners Take Improper Tax Credits

The Internal Revenue Service has allowed some foreigners to improperly claim tax credits that will cost the government nearly $9 billion, according to a federal report scheduled to be released today.

The report by the Treasury Inspector General for Tax Administration, which was obtained by The Washington Post in advance of its release, criticizes the IRS for lax oversight of foreigners who use an alternative form of identification instead of a Social Security number. Many of the foreigners who use the code, known as an Individual Taxpayer Identification Number, are illegal immigrants, according to government officials and immigration experts.

The IRS has allowed companies who employ foreigners to file tax documents using this form of identification even though the law forbids it, the audit says. It said that 292,992 companies improperly reported wages totaling $9.5 billion in 2006 using those codes.

The practice has allowed foreigners who file their U.S. taxes using taxpayer identification numbers to inappropriately claim a child tax credit, the report said. The improper credit will cost $8.9 billion over the next five years, the inspector general's office said. The report calls on Congress to pass legislation to fix the problem.

The IRS said in a response to the report that it disagreed with several of the inspector general's recommendations. The tax agency said, for example, that it is the responsibility of the Social Security Administration to fix the problem of improper uses by foreigners of alternative identification numbers.

The tax agency also said it has taken several steps to improve compliance with laws governing use of these taxpayer numbers. The inspector general's office said more changes were needed.