IRS May Disallow Withholding for Undocumented Workers

[taxea]

From NATP Newsletter:
IRS May Disallow Withholding for Undocumented Workers
The IRS has issued a Chief Counsel Advice that addresses a social security number (SSN) and ITIN mismatch with specific facts. The taxpayer is an undocumented worker, not eligible for an SSN; however, the taxpayer provides someone else's SSN in order to obtain employment. The taxpayer receives wages from his employer, and the employer withholds federal income tax under that SSN. The taxpayer wishes to fulfill his tax return filing and payment responsibilities, so he obtains an ITIN and files a tax return using the ITIN. The W-2, however, attached to the return, contains the SSN the taxpayer provided to his employer. The IRS processes the return under the ITIN, even though it is accompanied by a W-2 containing an SSN. During an audit of the return, the mismatch between the SSN and ITIN causes the IRS to disallow the federal income tax withholding the taxpayer claimed on his return until the IRS can determine if the taxpayer truly earned the wages for which the withholding credit is being claimed.
The IRS advises that in situations containing this fact pattern, refunds, if any, will be delayed until the IRS can verify the withholding as reported and paid to the U.S. Treasury (CCA 201005001).

[JohnH]

"Undocumented worker". Is that the same thing as an illegal alien who's also breaking another law, or do the PC police come after me for suggesting such a thing?

[veritas]

Good

....................

[S T]

Undocumented

JohnH, I would hope the PC Police will be quiet!

but it would be nice if there were some gov't intervention so this would not be an issue (undocumented employment issues)

Another "thankful" reason I don't have a Walk-in Office and only take on clients by referral

Sandy

[geekgirldany]

I read that today. I had some clients come to me a few years ago and the wife had a ITIN but the W-2 had a SS#. Told them to find out why the number on the W-2 did not match the ITIN. They did not come back. Haven't really seen any since then.

[erchess]

Two Questions one factual and one opinion

Factual - I think I read somewhere I think that an ITIN will always begin with a 9 and an SSN never will. Is that correct and if not what is the "trick" for telling them apart and are there any numbers besides nine that never begin a valid ssn.

Opinion - Comment on this Logic but feel free to question the givens.

Given - There are many people who are in the US and working who are here illegally or here legally but working illegally but who wish to file tax returns that the taxing agencies wish to receive and have the money to pay for preparation.

Given - If a tax professional knows of non tax related wrongdoing by a client he may tell law enforcement without fear of repercussions from the Courts or the taxing agencies.

Given - Being present in the US illegally, working while here legally but not authorized to work and using false social security numbers are all considered to be non tax related wrong doing.

Conclusion - Therefore the enlightened thing for a tax professional to do when asked to file a return for an illegal alien is to file it in a manner that is acceptable to the taxing agencies take the payment, and then turn in to the law enforcement agency which has jurisdiction and cares if there is any, the documentation that the client is illegal and is using a false SSN or otherwise breaking the civil and criminal laws of the US.

[Snaggletooth]

Illegals Don't File

Illegals (and yes, I don't have any problems calling anyone what they are) are 99% unlikely to file a tax return.

Largely responsible for the "Clinton surplus" - because they paid in tons of money, especially social security, to the govt coffers. Most of them would have a refund if they DID file. So this is a boon to the IRS collections.

It is the various states that are the revenue losers, because most of the services they consume are state-funded. Schools, medical services, municipal services, etc.

IRS wins, States lose.

[erchess]

Snags I rarely argue with you

But in many parts of the US including my county there are practices that specialize in the illegals besides which the two major national chains both court them.

[Snaggletooth]

Feel Free

Feel free to argue and speak your mind. I take exception to your presentation of facts, but no exception to your right to disagree.

In spite of all the courting and commercial companies bending over backwards to serve their various needs, the fact remains that most illegals are afraid to file. Banks, for example, will open a checking/savings account for them in a heartbeat, but won't open an account for citizens without an interrogation they attribute to the "Patriot Act." Many of the illegals have fake cards issued by diploma mills here in the U.S, thus an employer can cover his butt by producing paperwork if he has to.

My experience comes from three employers in the sawmill and nursery industries, who collectively employ over 100 of these with cards, whether the cards are legitimate or not. They are told they have the right to file when they receive their W-2s but most do not.

And there are even more who work under the table for practically nothing and receive no W-2 or information statement. There is no way these are going to file. And of course, they contribute nothing to the tax coffers as mentioned in the previous post.

[Jiggers]

Illegals

Until the current law is enforced regarding hiring illegals, there will be no change.

Companies that hire them should be severely punished. The heads of those companies should be severely punished.

This includes those ranchers that hire them.

The IRS Code should be changed to disallow a tax deduction for any expense for contract services (as this is how most are paid) when a 1099 is not issued. And the 1099 MUST have the correct SS number.

If the SSA would establish a website that would verify a SS number by entering the number and name as shown on the SS card which has to be shown when hired, giving the date of birth, much of this would be eliminated.

But all that makes sense and it won't be done.

[WhiteOleander]

The only thing the IRS notice will change is the FIT withholding. The illegal using the SS# will simply say that they don't want any withholding. Then they haven't last any money.

Unless and until Congress sets up a way for an employer to check the owner of the SS#, this problem will continue.

JMHO

[Jiggers]

Illegal with WH

I haven't seen a W-2 for an illegal with withholding!

I see several W-2's prepared by me for some of my clients that might have questionable SS #'s and none of them have withholding either!

[JON]

Why do you think

Washington, DC has not done anything about the illegals. For years that has been a nice source of income for them as social security and federal income taxes come in without ever being vlaimed. Social Security's life expectency has been increased by allowing it-the politicians know it is a short term help to them.

[JON]

Why do you think

Washington, DC has not done anything about the illegals. For years that has been a nice source of income for them as social security and federal income taxes come in without ever being claimed. Social Security's life expectency has been increased by allowing it-the politicians know it is a short term help to them.