Tax Issues Unique to Immigrant Workers

1. Tax Issues Unique to Immigrant Workers Chris Lee Office of the National Taxpayer Advocate Christopher.J.Lee@irs.gov June 16, 2005

2. About the Taxpayer Advocate Service • Headed by Nina Olson, the National Taxpayer Advocate • Independent organization within the IRS that helps taxpayers resolve problems within the IRS and recommend changes that will prevent the problems • Approximately 2,000 employees within the IRS working to help you • Each state has at least one Local Taxpayer Advocate

3. Taxpayer Advocate Service & ITINs • In her 2004 Annual Report to Congress, the National Taxpayer Advocate identified the processing of ITIN applications as one of the most serious problems within the IRS: • delays in processing tax returns filed with ITIN applications; • failure to process extension requests submitted by ITIN applicants; • inconsistent assistance provided to ITIN applicants by the Taxpayer Assistance Centers; and • issuance of ITIN notices in the wrong language.

4. Taxpayer Advocate Service & ITINs • The National Taxpayer Advocate continues to work with the ITIN Program Office to improve the processing of ITIN applications. • In addition, the National Taxpayer Advocate has asked that Low Income Taxpayer Clinics and other stakeholders representing ITIN taxpayers are consulted in advance about any proposed procedural changes. • E.g., revised Acceptance Agent procedures

5. Low Income Taxpayer Clinics • IRC § 7526 gives authorization for IRS to provide grants to LITCs for ESL and controversy work • The National Taxpayer Advocate administers LITC Program, overseeing the 154 LITCs nationwide • $8 million was appropriated for 2005 grant cycle

6. LITC Confidential • Confidentiality of taxpayer information is a key concern for many LITC clients and for the National Taxpayer Advocate • Publication 3319, the LITC grant application, states: • "Taxpayer information is confidential and should be shared on a limited basis.  Grantees are responsible for ensuring that taxpayer information is not compromised. Only those who have a need to know in order to effect resolution of the controversy should be allowed access to taxpayer information. A newspaper or other media reporter does not have a need to know of taxpayer information."

7. Confidentiality Revisited • IRC § 6103 restricts the IRS from disclosing tax return information • Enacted almost 30 years ago as part of the Tax Reform Act of 1976 • Provides that, in general, tax returns and tax return information be kept confidential • All exceptions to this general rule must be specifically set forth in § 6103.

8. Confidentiality Revisited • Statutory exceptions to confidentiality provision include: • Disclosure for tax administration purposes: § 6103(h)(2) provides that in matters involving tax administration, tax information may be inspected by DOJ if the TP is a party to the proceeding or the proceeding involves determination of liability under the Code or the collection of tax imposed under the Code. • Disclosure to agencies for non-tax criminal cases: § 6103(i)(1)provides that during the course of Federal nontax criminal investigations, Federal agencies must obtain an ex parte order from a Federal district judge or magistrate in order to gain access to tax returns and tax information provided by the taxpayer or the taxpayer’s representative.

9. Confidentiality Revisited • § 7216 prohibits tax return preparers from disclosing tax return information • Exceptions include: • Disclosure pursuant to other provisions of Code • Disclosure pursuant to an order of court or other Federal or State agency • Disclosure pursuant to formal written consent of taxpayer • “Tax return information” includes name, address or identifying number

10. Losing Confidence in Confidentiality? • Advising ITIN holders who may be reluctant to file taxes • In general, for a Federal agency to obtain tax returns or tax return information for purposes of a criminal investigation or proceeding, it must obtain an order from a Federal judge. • Thus, in general, tax information will be shared with another Federal agency only if he were already or were likely to be placed under investigation for some nontax violation of law. • Undocumented workers may show good moral character for immigration purposes by filing tax returns. • Tax returns are good way of proving residency in U.S. and for verifying income levels necessary for mortgages and other loans • Don’t compound problems by violating tax laws

11. Losing Confidence in Confidentiality? • Have assurances from Treasury, TIGTA, and the Commissioner that the IRS is interested only in tax administration • “[T]he Service believes at this time that any sharing of confidential taxpayer information, directly or indirectly, with immigration authorities would have a chilling effect on efforts to bring ITIN holders, and potential ITIN holders, into the U.S. tax system.  Such an initiative would deprive the Federal Government of tax revenue by discouraging illegal workers in the U.S. from participating in the tax system, when the Code requires them to pay tax on their U.S. earnings.” • Testimony of Mark W. Everson before the Subcommittee on Oversight of the House W&M Committee, March 10, 2004