Tax issues may prevent a green card holder from qualifying for U.S. citizenship. However, when an applicant for naturalization establishes a payment plan with the IRS they can sometimes significantly decrease their chances of tax underpayment being a major issue. The circumstances that led to the taxpayer underpaying the tax that they owed in the first place matter a lot.
An applicant for citizenship is required to prove that they are of good moral character. Failure to pay taxes in full may, in some circumstances, prevent them from doing so. The government recognizes that taxes are complicated. Both the Code of Federal Regulations and the USCIS Policy Manual require that officers compare the conduct that resulted in underpayment to the standards of the average citizen in the community, and to determine whether extenuating circumstances exist. See 8 CFR § 316.10(2) and USCIS Policy Manual, Volume 12, part f, Chapter 5: Failure to File Tax Returns or Pay Taxes in Accordance with Tax Authority. Such extenuating circumstances can include establishing a payment plan with the IRS. The determination of whether the underpayment demonstrates a lack of good moral character is ultimately determined on a case-by-case basis.
Blatant tax mistakes are bad. Conversely, mistakes that likely seem more technical to a person without a tax background are more likely to be forgiven, especially when they involve extenuating circumstances. The USCIS Policy Manual provides the following illustration:
An example of when an applicant may not be prevented from establishing [good moral character] despite filing taxes incorrectly could be where the applicant is divorced and mistakenly claimed a child as a dependent on his or her tax return for a tax year that the former spouse was entitled to claim the child as a dependent based on the terms of the divorce.
Policy Manual also specifically mentions that providing a letter from a taxing authority showing that payment arrangements have been made may correct “inconsistencies or errors” between the USCIS record and tax information, particularly when such a letter also notes that all appropriate forms have been filed. Id.
The worst circumstance is tax evasion in an amount exceeding $10,000. In addition to being a criminal act that demonstrates a lack of good moral character, such acts constitute an aggravated felony, leaving little room for discretion on behalf of the USCIS officer. See, INA 1101(a)(43)(M). Fortunately, tax evasion refers to a particularly hard-to-prove variety of criminal tax fraud. See, IRC 7201 (requiring willful act to avoid tax due).
Whether you discover that you owe tax before or after submitting the N-400, or the amount that you owe do not matter nearly as much as what led to the underpayment of the tax. Whether the circumstances that led to the underpayment of tax align with the standards of the “average citizen in the community,” and the existence of extenuating circumstances are more important.
Similarly, the amount due usually does not present an issue until you cross the $10,000 mark. Even then, depending on your particular circumstances, you may be able to explain the mistake away.
Establishing a payment plan as soon as possible is critical in maximizing your chance of establishing good moral character – although it doesn’t hurt to pay your tax due in full if you are able, it is generally not essential.
This information is intended to educate and should not be taken as legal advice. Written by Francis Law Center Staff Daniel Lurker