To File or Not to File:Tax Compliance Among Undocu mented Immigrant Workers

• Author: Jacqueline Laínez
• Position: Director of the Low Income Taxpayer Clinic (LITC) at the University of the District of Columbia
• Pages: 04

Prof. LaÌnez is an assistant professor and the director of the Low Income Taxpayer Clinic (LITC) at the University of the District of Columbia - David A. Clarke School of Law (UDC DCSL). She began her career in tax as an associate writer analyst for Wolters Kluwer - CCH Incorporated. Prior to joining the faculty at UDC DCSL, she practiced law in Chicago and simultaneously worked as an attorney consultant for the Center for Economic Progress' Midwest Tax Clinic in Chicago, where she formerly served as Assistant Director of their LITC.

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Each year as April 15th approaches, most Americans organize their recently arrived wage and interest statements in anticipation of filing taxes. Come tax time, undocumented immigrant workers in America face the fundamental decision of whether or not to file a tax return. Tax compliance among the general working public is a complex issue. However, tax compliance among undocumented immigrant workers, in particular, is exceedingly complex. This article explores the tensions circling the immigration debate with respect to tax policy and examines whether undocumented immigrants are materially participating in the basic American obligation of "filing" taxes, which is not synonymous with "paying" taxes. Analysis of the issue requires a review of the three key players to the discussion which include the Internal Revenue Service ("IRS"), the Social Security Administration ("SSA"), and the Department of Homeland Security ("DHS").

The United States population has reached 300 million, including an estimated 12 million undocumented immigrants, and it is vital for these three governmental agencies to work with Congress toward developing effective methodologies for addressing the needs of the population. One dire need is comprehensive immigration reform. Undocumented immigrants have limited options unrealistic quotas for legal entry, interminable processing times for adjustment of status petitions, and a systemic backlog that leaves many immigrants with little choice but to go "underground." Employment opportunities exist in the United States for foreign-born workers but offer little opportunity, particularly for "low skilled" workers, to migrate legally.

The Internal Revenue Service

The IRS is intensely aware of the fact that undocumented immigrants in the United States are holding jobs. The IRS, in the business of revenue collection, facilitates revenue collection by allowing undocumented immigrants to use a Taxpayer Identification Number originally developed to permit nonresident aliens to file United States tax returns to report United States source income. The Individual Taxpayer Identification Number ("ITIN") resolved the fact that nonresidents earning United States income from abroad did not possess and did not qualify for a Social Security Number ("SSN"), which is a requirement to file a personal income tax return. The ITIN program, first introduced in 1996, has since soared in popularity, primarily Page 24 among undocumented workers. The Commissioner of the IRS has gone on record regarding tax compliance by undocumented workers, stating: Our job is to make sure that everyone who earns income within our borders pays the proper amount of taxes, whether that income is legally obtained and whether the individual is working here legally. If someone is working without authorization in this country, he/she is not absolved of tax liability. Instead of an SSN to file a tax return, that person frequently uses an Individual Taxpayer Identification Number (ITIN).¹

The IRS is doing its job and has the unenviable responsibility of coaxing voluntary tax compliance by the working population in America, as well as compliance from those earningUnited States source income but who reside outside of the United States. Prior to the introduction of the ITIN program, the IRS experienced the administrative nightmare of receiving thousands of tax returns filed either with SSNs that did not exist, or that did not belong to the individual filing the tax return. When judged as a short-term solution, the ITIN program has been a resounding success.

The Social Security Administration

The Social Security Administration holds an intriguing position in the analysis because it is keeper of the enigmatic Earnings Suspense File ("ESF"). The ESF is where employment taxes are placed when they cannot be traced to the person who earned the taxed wages. Employment taxes are sometimes referred to as Medicare and Social Security taxes. They were specifically enacted under the...