A distinction must be made between the immigration laws of the United States and the tax laws of the United States. Although immigration laws of the United States refer to aliens as immigrants, nonimmigrants, and undocumented (illegal) aliens, tax laws of the United States refer only to resident and nonresident aliens. Under tax law, resident aliens are taxed in the same manner as U.S. citizens on their worldwide income, regardless of their immigration status. The residency rules for tax purposes are found in §7701(b). Undocumented aliens become residents, for tax purposes only, by passing the substantial presence test. To meet the substantial presence test, a person must be physically present in the United States on at least: 31 days during the current year, and, 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting all days present in the current year, and 1/3 of the days present in the first year before the current year, and 1/6 of the days present in the second year before the current year. The application of this somewhat complicated formula is simplified when considering undocumented individuals present in the U.S. for at least 183 days in the year; they are considered resident aliens for tax purposes. Detailed information on the substantial presence test can be found in IRS Publication 519, U.S. Tax Guide for Aliens. Resident aliens, even though undocumented, are generally taxed in the same way as U.S. citizens. Resident aliens should file Form 1040EZ, 1040A, or 1040. The due date for filing the return and paying any tax due is April 15 of the year following the year for which a return is filed. Undocumented resident aliens are not eligible for social security numbers but are required to file tax returns and pay taxes. Individual Taxpayer Identification Numbers (ITINs) are issued by the IRS and used for tax filing purposes only. ITINs are issued to help individuals comply with U.S. tax law, and to provide a means to efficiently process and account for tax returns and payments for individuals not eligible for social security numbers. An ITIN does not authorize work in the U.S. or provide eligibility for social security benefits or the earned income tax credit (EITC), is not valid for identification outside of the tax system, and does not establish immigration status. Form W-7, Application for IRS Individual Taxpayer Identification Number, is used to apply for an ITIN and usually must be included with a valid tax return. (There are certain exceptions to this rule beyond the scope of this article.) Form W-7 is available in both English and Spanish.
Form W-7 is a brief, six part, one page form. When completing Form W-7, “N/A” (not applicable) should be entered on any lines that do not apply. Do not leave any lines blank. Documentation must be included with Form W-7. Original documents may be submitted, and will be returned to the applicant by the IRS. However, the IRS encourages tax professionals to use certified or notarized copies of documents instead of submitting original documents. Document copies must be certified by the issuing agency, or certified/notarized by a U.S. military judge advocate general officer, a foreign notary authorized under the Hague Convention, or a U.S. notary public. For documents certified by foreign notaries authorized under the Hague Convention, a document called an apostille must accompany the supporting documentation. The supporting documentation must be consistent with the applicant’s information provided on Form W-7. For example, the name, date of birth, and country of citizenship must be the same as on lines 1a, 4, and 6a of the Form W-7.
Only certain documents can be used when applying for an ITIN. An original passport or a properly notarized or certified copy of a passport is the only document that can be submitted by itself and considered valid proof of identity. If a valid passport is not available, a combination of current documents (at least two or more) that show the name and photograph and support the claim of identity and foreign status of the applicant must be submitted. Of the minimum of two documents, only one of them is required to present a recent photograph.
Tax returns filed with an ITIN reporting wages paid are required to also show the social security number under which the wages were earned. This creates an identification number (ITIN/SSN) mismatch since undocumented residents cannot possess valid social security numbers. In the past, returns with this mismatch could only be filed on paper. Due to programming changes the IRS’ e-file system can now accept these mismatch returns. The taxpayer’s correct ITIN should be used as the identifying number at the top of Form 1040. When entering W-2 information, the SSN should be entered exactly as shown on the Form W-2 issued by the employer. It is now possible to e-file a return with an ITIN/SSN mismatch. If a primary taxpayer, spouse, or both have ITINs, they are ineligible to receive the EITC, even if their dependents have valid SSNs. If the taxpayer and spouse (if filing jointly) have valid SSNs, only dependents with valid SSNs—not ITINs—qualify to receive EITC.
Some undocumented resident aliens have expressed fear that the IRS will reveal information about their undocumented status to other federal agencies. Such disclosures are generally prohibited under §6103.
In summary, many undocumented resident aliens are required to file U.S. income tax returns. Tax professionals have an opportunity to increase tax preparation revenues by assisting these individuals.