OAKLAND -- Isaias Aguilar filed his income tax returns for the first time this year and took a financial hit for it. He owed $579 to the Internal Revenue Service for some of the work he did last year, including as a part-time taekwondo instructor.
The 29-year-old Mexican immigrant is not authorized to live and work in the United States, but he is one of millions of illegal immigrants known to use an Individual Taxpayer Identification Number, or ITIN, to file their taxes because they do not have Social Security numbers.
Parting with the $579 might hurt him in a tough economy, but the Oakland resident hopes his fiduciary responsibility will help him in the long run. If Congress ever creates a path to citizenship for illegal immigrants, those who tried to play by the rules might have a better chance of getting a green card, he said.
"I don't know what's going to happen in the future," Aguilar said. "If something good will happen for immigrants, an amnesty, they're probably going to ask if I'm reporting my tax forms."
The IRS reported 3.8 million tax returns filed with ITIN numbers for the 2009 tax year.
Undocumented immigrants are not the only people using ITIN numbers. Foreign investors are among those who might file taxes without a Social Security number. But most accountants and tax officials say the majority of ITIN holders are illegal immigrants. The tax agency is prohibited from sharing information about ITIN holders with immigration agents and other federal authorities.
"The reason why the IRS does it is they want everyone to pay taxes," said Vanessa Muñiz of the United Way of the Bay Area. "They don't care if you're documented or undocumented. They want everyone's money."
The United Way -- through a program called Earn It! Keep It! Save It! -- sponsored free tax preparation help for low-income residents at a few hundred sites across the Bay Area in recent weeks. More than 15 of those sites had IRS-certified agents authorized to process forms filed with ITIN numbers.
One of those agents, Leonardo Covis, was there when Aguilar came through the doors of East Oakland's SparkPoint center looking for help.
"If you're here and don't have legal status, but want to eventually, a good thing to do is start filing tax returns," said Covis, who works for the East Bay Asian Local Development Corporation, one of the organizations providing free help.
Muñiz said the IRS made it easier this year for nonprofit organizations to give undocumented immigrants free tax preparation services. Previously, anyone filing with an ITIN number had to pay a professional tax preparer or go directly to IRS offices in Oakland or Walnut Creek. But getting to those IRS offices was impossible without a driver's license, and undocumented immigrants are ineligible for driver's licenses in the state.
"You can't get into the building," Muñiz said. "So they would go to paid professionals, paying $200 to $400, paying a lot of money to get this number."
Like other tax-filers who worked all year and had money withheld from their checks, some undocumented immigrants get refunds when they file their forms. Those who don't file their forms may lose that money to the government. Many also pay into the Social Security system using false numbers on their work forms, but are ineligible for the fruits of their contributions. Still others pay California's $800 franchise tax so they can work as independent contractors.
Illegal immigrants are ineligible for one of the best-known and most lucrative benefits, the Earned Income Tax Credit, but those with children can apply for the Child Tax Credit, which can reduce income taxes by up to $1,000 for each qualifying child.
The financial cost of illegal immigration is controversial, and a common argument is that illegal immigrants dodging taxes cost the country billions of dollars. Others who fight to stop illegal immigration, like Michigan researcher Edwin Rubenstein, say many illegal immigrants do, in fact, file their returns, but they do so chiefly to obtain tax credits, including those for which they are not eligible.
"It's such a widespread practice," said Rubenstein, who wrote a report on immigrant tax fraud in his magazine, the Social Contract. "In many cases, it may be the determining factor of why these people come here in the first place. Even if you don't have a job, you can file for the credit."
Muñiz finds little evidence to support that argument. The IRS catches up to those who file fraudulent returns, and most undocumented immigrants do not want to jeopardize their ability to stay in the country -- even if it means losing money, or gaining just a small return, at tax time, she said.
The average tax refund for ITIN holders last year was $2,700, lower than the average refund for all taxpayers, which was about $3,000.
"I really do think there's a huge misconception," Muñiz said. "They're paying taxes just like everyone else. They work; they pay taxes. They purchase goods; they pay taxes.
"They aren't any different from any other person except they're undocumented."