IRS Offers Specialized Extra Benefits to some DACA and DAPA Grantees

By David North, February 5, 2015

The Internal Revenue Service has just decided that some illegal aliens, granted short-term amnesty under the president's recent edict, can also retroactively collect tax benefits previously denied to them.

The benefits can be as much as several thousand dollars — and perhaps as much as $10,000 over the years for some illegals, particularly parents. It's a pretty specialized offer wrapped in IRS complexities, but one that will probably bring some serious money to income tax preparers working in areas where there are numerous amnesty beneficiaries.

The average recipient of DACA or DAPA amnesty, mostly lightly educated, will not be able to figure out how to take advantage of these opportunities without technical assistance. Getting these refunds is much more of a paperwork challenge than getting the amnesty itself.

Of course, as Sen. Grassley (R-Iowa) has charged, this all runs counter to congressional decisions that illegal aliens should not work in the United States. He has asked IRS to re-think its position on these refunds.

How does this deal work?

The benefits in question relate to the Earned Income Tax Credit, a long-established part of the tax code that provides some low-income workers tax refunds over and above whatever taxes they had deducted from their paychecks. Commendably, over the years IRS has demanded that one has to have a valid Social Security number in order to claim these credits. This has excluded many illegal aliens from the program.

But both the on-going DACA program (deferred action for childhood arrivals) and the about-to-bloom DAPA (deferred action for parents of Americans) provide not only work authorization permits, but also valid Social Security numbers. An illegal, newly partially legalized through either of these programs, then can use the new Social Security number to file a 1040X IRS form, claiming back benefits that he or she had not sought in the past, though there are serious complications.

The first obstacle is that an illegal has to have filed income tax returns for the past years in question. The 1040X can be used to revise a previous filing, but cannot be used when there was no prior filing. That provision happily narrows the field.

The second is that a statute of limitation applies; one can only file up to three 1040X forms for three different years.

The third hurdle is the double complexities of filing for EITC, a really intricate operation under any circumstances, and doing so retroactively through the 1040X form, a document that is less well-designed than the 1040. (I have had some experience with this myself, both on my own behalf, and for graduate students at a DC-area university where my colleagues and I have run a volunteer income tax counseling program for students over the last decade.)

This is where the professionals profit.

They can fill in the 1040X for the illegal using off-the-shelf software to ease the process and then get the illegal to record as his or her address the office address of the preparer. Thus, when the refund arrives it is held physically by the preparer who will not let it go until he or she has secured a fee. (Typically, illegals do not pay ahead of time for these services.)

So the real beneficiaries of this IRS decision will be the notarios and other preparers who will be doing a land-office business in the next few months.

For more on the underlying problem of how the tax code has been used, in numerous ways, to pay illegals to stay in this country, see the CIS Backgrounder "Paying Illegals to Stay: IRS gives out billions each year".