Administration steps up executive action: policy tightens immigration rules; report targets proprietorships

Hardware Retailing, Oct, 2007

The usual process in Washington is for Congress to pass laws and the administration and its regulatory agencies to write rules to implement them. It could well be that process is changing as the Bush administration goes into its final 18 months.

Many observers believe that major legislative initiatives backed by the administration are not likely to make much headway. Broad-based immigration reform, for instance, was defeated for all intents and purposes, when the Senate failed to act on the legislation.

The administration's response could well be a precursor of things to come. In the absence of legislation, the Department of Homeland Security (DHS) issued policy guidelines on enforcing existing immigration law. Policy guidelines are an administrative shortcut around the lengthy rule-making process, but they have the same effect as federal rules.

As part of the policy guidelines, DHS issued a rule, which was scheduled to go into effect Sept. 14, 2007, that redefined "constructive knowledge" about the employment status of workers and set out actions employers must take to avoid increased criminal and civil penalties.

Employment Verification Responsibilities

The rule centers on no-match (Employer Correction Request) letters sent to employers once a year by the Social Security Administration (SSA) if it finds 10 or more errors in information--usually names and Social Security numbers that do not match SSA's records--in the employer's W-2 forms.

SSA has said it would begin mailing no-match letters to 140,000 employers immediately after Labor Day. In addition to the usual SSA information on how to resolve the questions, those letters will be accompanied by a general notice from DHS's U.S. Immigration & Customs Enforcement explaining employers' obligations under current immigration law and actions they must take to prove they tried to resolve questions on worker status.

If employers do not take those steps and find themselves the subject of an inquiry, DHS says, it will use the letter as evidence the employer knew there were questions about employment eligibility and as evidence in civil and criminal proceedings. (A DHS fact sheet detailing the new policy is available at www.dhs.gov/xnews/releases.)

DHS does not have access to SSA's list of employers who receive no-match letters, so it will have to use its own resources to find possible violations of immigration law.

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Within days of the policy release, business and labor groups took action. The Essential Worker Immigration Coalition of more than 40 business groups sent SSA and DHS a list of 82 questions and asked them to delay implementing the rule for at least six months. The coalition said the new rule had created confusion and would result in massive, new paperwork requirements.

The AFL-CIO, the National Immigration Law Center and the American Civil Liberties Union filed a lawsuit challenging the authority of DHS and SSA and asking for a preliminary injunction to stop implementation of the rule. The lawsuit contends that the rule expands liability under the Immigration Reform & Control Act beyond what Congress intended and that no-match letters are actually tax documents and that only the Internal Revenue Service (IRS) can require a response to them.

Tax Gap Report Targets Sole Proprietors

A new report from the Government Accountability Office (GAO) says that nearly 20 percent of the tax gap comes from sole proprietors who mis-report income and that the IRS has not paid enough attention to tax filings by sole proprietors.

The GAO report said that sole proprietors misreported 57 percent of their business income in 2001 (the most recent figures available) and that $68 billion of the tax gap--the difference between taxes owed and taxes paid--is traceable to these businesses. The reasons, according to GAO, are that sole proprietors are not subject to tax withholding rules and only a portion of their income is reported to IRS by third parties.

GAO suggested a plan to reduce non-compliance that would include helping sole proprietors comply voluntarily, helping the IRS find and prevent under-reporting and reducing paperwork generated by tax filing and third-party reporting.