Hiring workers with no ITIN

Have a brand new accounting client -- contractor -- who has several hard-working immigrants working for him. One problem: their ITIN numbers don't match up anything on Uncle Sam's records; the IRS has written the business in years past to start withholding 28% on certain workers, but I don't see any effort made in that regard. What's the risk to the business owner, practically speaking? Anyone with any experience in this regard? What can happen? Can the IRS penalize him, shut him down, etc?

The employer will not get "in trouble" with the IRS for hiring illegal workers. HIs problem is with ICE. I'm in CA, so I know LOTS of businesses that do this--hire illegal workers. When I was working as a waitress, the entire kitchen staff was undocumented. We got raided once. The restaurant got a huge fine, and had to fire everyone. Most of them were too scared to come back. But they rehired a bunch of undocumented aliens again a few months later. Everyone knows it is happening, and everyone looks away.

I'm not sure what exposure you might have as an accountant, though. Can you file payroll returns using SSNs that you KNOW are stolen? There might be some exposure there.

I have only done compliance from the other side-- filing the Form 1040 for undocumented aliens that have wage income. The IRS honestly hasn't cared, (in the past) as long as they are reporting all their income and filing properly (with an ITIN). But now with all the fraud alerts going on, I don't know that I would accept a new client in that situation (unless it was a family member).

I had a client that had a landscaping business that used a lot of undocumented workers. He got raided by ICE and lost virtually all his workers. Almost went out of business. Lost about 80% of his business and he wound up pushing a mower again just to buy groceries.

It doesn't matter if the worker has a valid ITIN or not, it is illegal to hire somebody who doesn't have a Social Security Number that is valid for work. Period. End of story.

Ethics, *tsk *tsk. Gotta love when everybody wants the benefits of the US Gov't, and nobody wants to pay for it.

Ethics, *tsk *tsk. Gotta love when everybody wants the benefits of the US Gov't, and nobody wants to pay for it.

I can read this in several different ways, and I'm not sure which was intended.

So I'll just add this: Many of the undocumented workers are more than happy to pay taxes, but run into the problem that many tax pros simply don't know the first thing about filing a W-7, nor do they understand how to file a 1040 with an ITIN when the informational docs have some other SSN/TID.

I don't want to go down the entire immigration rathole, but the IRS processes for ITINs are what they are, and I don't think we can find fault with tax professionals learning to use those processes correctly.

Ethics, *tsk *tsk. Gotta love when everybody wants the benefits of the US Gov't, and nobody wants to pay for it.

I can read this in several different ways, and I'm not sure which was intended.

So I'll just add this: Many of the undocumented workers are more than happy to pay taxes, but run into the problem that many tax pros simply don't know the first thing about filing a W-7, nor do they understand how to file a 1040 with an ITIN when the informational docs have some other SSN/TID.

I don't want to go down the entire immigration rathole, but the IRS processes for ITINs are what they are, and I don't think we can find fault with tax professionals learning to use those processes correctly.

Except that isn't what in ITIN is for. It isn't for illegal immigrants to come here and work. They need a green card for that.

Usually the businesses that hire these illegals do so to skirt the employment laws, to get out of paying fair wages, Employment taxes, and unemployment insurance. Hence not paying for the benefits of the US Gov't.

Our office works with many undocumented immigrants as well, so I do ITIN returns on a regular basis. They don't work under their ITIN numbers, and tax software now has a space to put the SSN that is on the w2 for efiling purposes, I am assuming it is for the IRS to match up W2s, but I just had an ITIN holder that was audited so we had to mail in the paper w2s for verification. Many of them receive 1099's even though they are employees, and I had another one audited for self-employment tax. My question is where is this tax going since having an ITIN does not qualify one for Social security...
I don't necessarily agree with any of this either, but more and more people are coming in to apply for ITIN's and do their taxes so I am more than happy to do them and get them into compliance. I don't really think it would be my business or even be appropriate for me to ask them about working under a fake social security number!

They can't be employees. It's illegal to hire someone without a social security number that is valid for work.

Just because it's illegal doesn't mean it can't happen. For tax purposes, people who've been hired in violation of federal immigration laws are still liable for income taxes, and as far as I know, the employer is still liable for employment taxes.

Yeah, exactly. And the problem we run into is that there is no IRS Pub for Illegal Aliens that tells us how to handle, with authority, all the tax issues presented.

There may not be a Pub but consider the following:
An ITIN only starts with a 9. That is how it is distinguished from the SSN.
As noted on this and other threads, an ITIN is for use by someone who does not qualify for an SSN.
It is only an SSN that entitles one to work in the USA. An ITIN does not extend the same privilege.

Given the foregoing, if an employer asks you to prepare a W-2 for an employee with a "Social" beginning with 9, what would your response be and why?

We have this come up from time to time and enough that we've sent out emails for business clients about this. The email is basically, if they give you a "Social Security Number" that starts with a 9, you need to run away right then and there.

As for when it is after-the-fact and you cannot unemploy someone - we prepare the W2s based on the information given but they have to be paper filed since filing software will not accept the invalid number. We charge significantly extra for that hassle. In addition, we issue a letter to the owner explaining that this is not a valid Social Security Number for work purposes and that they need to immediately ask their employee to provide the necessary documentation to prove they are eligible to legally work in the United States or else terminate their employment.

Hopefully, as eVerify use becomes more common, we will see this situation less and less.

Also, to clarify something else - the OP was specifically asking about handling this situation from the point of view of a business owner using employees/contractors who appear to be undocumented. That is a totally different situation than filing a 1040 on behalf of the alleged undocumented worker. An ITIN is valid for one of those things and not the other. Filing the 1040 is about getting the worker compliant with federal laws, in this case federal tax laws. Hiring undocumented workers and/or not withholding the mandatory 28% is about being non-compliant, not only with federal tax laws but also with federal immigration laws. One is good, one is bad.