You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico.
You provide all the support of your children, ages 6, 8, and 12, who live in Mexico with your mother and have no income. You are single and live in the United States. Your mother is not a U.S. citizen and has no U.S. income, so she is not a “taxpayer.” Your children are not your qualifying children because they do not meet the residency test. Also, they are not the qualifying children of any other taxpayer, so they are your qualifying relatives and you can claim them as dependents if all the tests are met. You may also be able to claim your mother as a dependent if all the tests are met, including the gross income test and the support test.
Supposedly, it is possible for them to claim up to 10 dependents who reside in Mexico or Canada. That would amount to $36,500 in deductions. All they have to do is file the W-7 form and get the ITIN number.
My friend who alerted me to this had the following comments as to how this is actually practiced:
"It was always Box B, C or D. Mainly Boxes C & D because people were filing their taxes and a W7 from to get ITIN numbers for relatives in Mexico while the Gov’t covers for them. Under Dependent they could file for anyone stating that they are a relative. All they needed was the persons ID from Mexico which was a so called birth certificate or baptism document that could be easily fraudulent. There were also many applications filed for Box C; because they are already in the country and claim that they are already here a number of days."
My friend is without a job currently, and I would personally consider it a fantastic use of my tax money to create a position just for her so she can go through the tax code and expose travesties such as this one.
If there is anybody out there who cares at all about US taxpayers, and knows of a watchdog agency looking for an extremely motivated patriot and tax wonk, please get in touch with me.
This is all from Publication 17 straight off the IRS.gov site. Why has nobody brought this to light? Furthermore, there is the larger issue of our government's seeming intent to forge ahead with merging the USA with Canada and Mexico, without even asking.