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Report: IRS Provided Foreigners $1.8B in Improper Tax Credits

The IRS allowed more than 1 million foreigners -- many of them in the U.S. illegally -- to improperly claim $1.8 billion in child tax credits in 2007, a government investigator said Thursday.

The Internal Revenue Service allowed the tax credits even though the workers did not provide Social Security numbers on their tax returns, J. Russell George, the Treasury Inspector General for Tax Administration, said in a report.

The workers instead used government-issued tax identification numbers, which are available to immigrants for certain tax-filing purposes -- regardless of their legal status -- but are not valid for employment in the U.S.

The issue highlights a weakness in current law, according to the report. Federal law does not require a Social Security number to receive the $1,000 child tax credit, which is available to workers, even if they don't make enough money to pay any federal income taxes. But a Social Security number is required to work and earn wages in the U.S., the report said.

"As it now stands, the payment of federal funds through this tax benefit appears to provide an additional incentive for aliens to enter, reside and work in the U.S. without authorization, which contradicts federal law and policy to remove such incentives," the report said.

The Internal Revenue Service said it supports efforts to require Social Security numbers to receive the child tax credit. In the meantime, the IRS has stepped up efforts to ensure that immigrants do not improperly obtain Individual Taxpayer Identification Numbers, the agency said in a written response to the report.

The IRS also said the Social Security Administration is working to ensure that workers have valid Social Security numbers.