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It was called the “Israel Project,” an operation by the U.S. Internal Revenue Service that has uncovered false claims for child tax credits involving an estimated tens of millions of dollars filed by U.S. citizens living in Israel.

As a result of the child credit scam, many of the 200,000 Americans in Israel who made legitimate claims have faced costly audits by the IRS. These require claimants to prove they meet conditions for getting the money, including that they are legitimately employed and that their children are U.S. citizens.

Accountants said claims surged when it was realized U.S. nationals living abroad were eligible for the credit, beginning in the ultra-Orthodox community and spreading from there.

Ultra-Orthodox families are typically large, but men usually have no formal employment, devoting their lives to religious study on small Israeli government stipends. Fathers are therefore ineligible for the payment, which is worth $1,000 per child every year to middle-income wage earners. In many cases, mothers are either not U.S. citizens or earn too little to make a claim.

Accountant Philip Stein said ultra-Orthodox Jews weren’t the only people involved in making false claims. “It started in that sector but it wasn’t just Haredim,” he told Reuters.

The IRS initially called the examination the “Israel Project,” a phrase one accountant said appeared on letters some of his clients received from the government agency.

Stein said the IRS “took off its gloves” after pre-audit letters were ignored and then false income was reported. “I met an IRS official and she said: ‘You are from the land of false tax returns,’” he said.

The IRS denied there is an “Israel Project” or that it is singling out U.S. citizens in the country for special scrutiny.

“The IRS bases its exam selection on analysis of the information reported on individual returns,” it said in an emailed statement to Reuters. “Currently, audits of potential abuse in the child tax credit and other refundable credits are underway and ongoing in more than a dozen different countries.”

Some expats are being served with IRS penalties amounting to thousands of dollars, which often results in the case going to tax courts.

Under U.S. law, Americans expats must file annual income tax returns in the United States. Those who wind up owing no taxes in the United States after deductions and foreign income exclusions can claim the money.

Like a torpedo

“This took off like a torpedo,” said Jeff Melamed, a U.S. certified public accountant practicing in Israel. “Unfortunately, some unscrupulous tax preparers, many of whom were not CPAs but opened up shop to generate refunds, did a lot of less-than-kosher things.”

Melamed said that even before the IRS had begun to investigate he had spoken to several rabbis in Orthodox communities to try to stop the child credit abuse.

The irregularities were of two types. To qualify for the U.S. credit, one must have “taxable earned income” — but some people based their claims on religious studies scholarships, child allowances from the Israeli government and even gifts. Others claimed credits for children who were in the process of becoming U.S. nationals but were not yet citizens.

“Once the IRS discovered that certain taxpayers may not have reported their income properly, due possibly to improper advice they received from some unscrupulous advisers, the IRS extrapolated and thought most if not all taxpayers from Israel were filing improperly,” said Alan Deutsch, a U.S. CPA in Israel. “As such, they started auditing thousands of taxpayers in Israel.”

Debbie Eisenberg, a mother of two who runs after-school programming, was audited by the IRS over her child allowance claim, even though her children were U.S.-born.

“Any time you get a letter from the IRS saying there’s a problem, it’s nerve-racking,” she said. “So I immediately called my accountant freaking out and he said: ‘Don’t worry, it happened to me too.’”

While no data are available on U.S. audits in Israel, several accountants interviewed estimate about half their American clients have been audited in the past few years. In the United States, less than 1% of tax filers were audited in 2013.

Ultimately, Deutsch said, cases in which income was reported properly have been resolved in the taxpayers’ favor in Israel, but not before they spent thousands of dollars on accountants, certified translators for documents in Hebrew and tax lawyers.

“The IRS was tough,” said Steven Walz, who immigrated from New York in 2001. “They asked for birth certificates, they asked for my marriage certificate and a voucher from the kids’ doctors and teachers that they existed and were a part of my family.” Eventually, the IRS ruled all was fine.