According to the Inspector General of the U.S. Treasury Department, the Internal Revenue Service (IRS) each year pays billions of dollars in "child tax credits" to illegal aliens.1 The child tax credit, provided by section 24 of the Internal Revenue Code, is a credit against a taxpayer's federal income tax liability of $1,000 for each of the taxpayer's children.2 The credit is reduced for taxpayers whose income exceeds a specified amount.3
These child tax credits are being provided by the IRS to illegal aliens notwithstanding that the Personal Responsibility and Work Opportunity Act of 1996 (PRWOA) long ago provided that an illegal alien "is not eligible for any Federal public benefit."4 According to PRWOA, "[i]t is a compelling government interest to remove the incentive for illegal immigration provided by the availability of public benefits."5 For purposes of the PRWOA prohibition, the term "Federal public benefit" is defined extremely broadly, to include "any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States."6
Although the IRS has given no public explanation of why the child tax credit is not a "welfare ... or similar benefit for which payments or assistance are provided to an individual" (which cannot lawfully be paid to an illegal alien), the Congressional Research Service (CRS) considered that question in a 2015 report.7 The report pointed out that no federal court had yet considered the question whether a refundable tax credit was a "Federal public benefit" for purposes of the PRWOA prohibition, but that several federal trial courts had determined that the child tax credit was not a "public assistance benefit" for purposes of U.S. bankruptcy law.8
The courts to which the CRS report refers had held that not every public benefit qualified as a "public assistance benefit" inasmuch as the term "assistance" implied a purpose to assist low-income families. Thus, the "earned income tax credit" under section 32 of the Internal Revenue Code qualified as a "public assistance benefit" because it was aimed at low-income families,9 while the child tax credit under section 24 did not because it was aimed at middle-income families.10 As the CRS pointed out, using the Oxford English Dictionary as a reference, the difference between a "public benefit" and a "public assistance benefit" is that a "benefit" is a "payment made by the state ... to someone entitled to receive it" while "assistance" is the "provision of money ... to help someone."11
Technically speaking, the lower court decisions cited in the CRS report never reached the question of whether the child tax credit was a "public benefit" since in the opinion of those courts the credit did not afford the "assistance" that characterized a "public assistance benefit", the governing standard under bankruptcy law. In any event, those decisions now have little bearing on the question at hand because the U.S. Court of Appeals for the Eight Circuit subsequently decided that, for purposes of bankruptcy law, the refundable child care credit is a "public assistance benefit".12 The appeals court distinguished the contrary, lower-court decisions on the ground that they were based on the original version of the child tax credit and did not take into account subsequent amendments by Congress to target the benefits to "low-income" families.13
In light of a decision by a U.S. Court of Appeals that the child tax credit is a "public assistance benefit", it should be hard if not impossible for the IRS to justify continuation of its implicit position that the credit is not a "public benefit". Nevertheless, the likelihood that the IRS will abide by the appellate court's decision must be weighed against its self-evident determination to frustrate the intent of Congress, as expressed in the PRWOA, to "remove the incentive for illegal immigration provided by the availability of public benefits."
Unlike a claimant of the earned income tax credit, a taxpayer claiming the child tax credit need not have a Social Security number. However, the credit must be claimed on a federal income tax return, and the filer of any such return must have an "identifying number".14 The "identifying number" is the taxpayer's SSN, if he has one,15 and any alien residing and working lawfully in the United States should have an SSN.
There are a number of circumstances in which an alien who does not reside in the United States (a "nonresident alien") alien may need to file a U.S. income tax return, and the Internal Revenue Code authorizes the Treasury Department to issue an "individual taxpayer identification number" (ITIN) to any person who properly documents his "identity, foreign status, and residency".16 Treasury Regulations provide that an ITIN is generally identified "as belonging to a nonresident alien individual", but that, if the IRS determines that the alien is not a "nonresident alien", the IRS "may" require the alien to apply for an SSN and "may" allow the alien to use an ITIN if an SSN is not available.17
The natural reading of that regulation is that the IRS may issue ITINs to aliens who spend too much time in the United States to qualify as "nonresident" but may nevertheless need an "identifying number" in order to file a U.S. tax return. However, as noted in the aforementioned reports of the Treasury Department Inspector General, the IRS has adopted a "don't ask, don't tell" policy of issuing ITINs to millions of aliens who reside in the United States, who would normally use an SSN as their "identifying number", but who cannot get an SSN because their U.S. residence is unlawful. Although it appears that the IRS "may" do this under the applicable Treasury Regulations, they are by no means obligated to do so, and by doing so they undermine the intent of Congress in PRWOA "to remove the incentive for illegal immigration provided by the availability of public benefits." The Treasury Department is of course free to amend its regulations to remove the loophole through which the IRS has poured billions of dollars into the hands of immigration lawbreakers.
1 "Actions Are Needed to Ensure Proper Use of Individual Taxpayer Identification Numbers and to Verify or Limit Refundable Credit Claims", Reference Number 2009-40-057, Treasury Inspector General for Tax Administration, March 31, 2009; "Individual Taxpayer Identification Numbers Are Being Issued Without Sufficient Supporting Documentation", Reference Number: 2010-40-005, Treasury Inspector General for Tax Administration, December 8, 2009.
2 8 U.S.C. § 24(a).
4 8 U.S.C. § 1611(a) (emphasis supplied).
5 8 U.S.C. § 1601.
6 8 U.S.C. § 1611(c)(1)(B).
7 Erika K. Lunder, "Legal Authority for Aliens to Claim Refundable Tax Credits: In Brief", Congressional Research Service, December 1, 2015.
8 Id. at 7.
9 See, e.g., In re Jones, 107 B.R. 751 (Bankr. D. Id. 1989).
10 See, e.g., In re Beltz, 263 B.R. 525 (Bankr. W.D. Ky. 2001).
11 Congressional Research Service, supra, at 7.
12 In re Pepper Minthia Hardy, 787 F. 3d 1189 (2015).
13 787 F. 3d at 1194.
14 8 U.S.C. § 6109(a).
15 8 U.S.C. § 6109(d).
16 8 U.S.C. § 6109(h).
17 26 C.F.R. § 1.6109(g)(1)(iii).