Obstacles to citizenship pile up as DHS puts taxes under microscope

(Bloomberg Law) — The Department of Homeland Security is scrutinizing immigrants’ tax records more closely, issuing denials of citizenship to those on IRS payment plans or who are applying for extensions.

It’s a marked departure from past procedures for evaluating whether potential citizens meet the agency’s “good moral character” standard, where an applicant’s willingness to pay taxes, including through payment plans, was previously considered positive evidence in a naturalization applicant’s case, lawyers said.

But a change in U.S. Citizenship and Immigration Services policy is making these circumstances a new hurdle for would-be citizens, amid declining naturalization rates in President Trump’s second term.

Tax payments have come under closer scrutiny after a policy memorandum issued last year ordered officials to adopt a “holistic” approach to assessing good character, including evidence of community involvement, education and tax compliance. Before the announcement, unless there were tax charges or convictions, they were not used against applicants, lawyers said.

Bloomberg Law reviewed several denials of citizenship shared by attorneys based solely on participating in a payment plan or requesting an extension of time to file.

Citing agreements with the IRS to file taxes later or pay in installments when citizenship is denied goes well beyond the intent of federal immigration statutes and the language of USCIS regulations, said Doug Rand, a former senior agency official.

“They are completely crazy tunes,” he said, predicting that lawyers would successfully appeal the denial. “It’s a waste of time, especially when the agency has all these big backlogs. But the political leadership doesn’t care.”

Meanwhile, the administration defended its ability to review all the factors.

“Ensuring tax compliance is a longstanding legal requirement that will not be overlooked by this administration,” said Zach Kahler, USCIS spokesman.

The IRS did not respond to a request for comment.

It’s a common misconception that a filing extension delays the payment deadline, but taxpayers still have to make an estimated payment of what they owe. Failure to do so may result in civil penalties.

Those who applied for an extension of filing but did not pay by the deadline have their citizenship applications denied, as do those who pay taxes in installments.

For example, Lily Axelrod, an immigration attorney in Memphis, said one such client was denied naturalization last month shortly after her husband took the citizenship oath.

“She didn’t have a single immigration violation,” Axelrod said.

The USCIS denial said her request for an extension of time to file and failure to pay on time without extenuating circumstances was an “unlawful act that adversely affects your moral character.” This language is typical of recent denials, even for applicants with no criminal record or history of IRS penalties.

“USCIS is tougher than the IRS itself,” said Michelle Marty Rivera, an immigration and tax attorney based in Miami.

Demonstration of good moral character has been a requirement for citizenship since the first naturalization law was passed in the 18th century.

The evaluation focused on criminal history, although the USCIS policy manual states that an immigrant who fails to file a tax return or pay their taxes in full may be disqualified from meeting the criteria.

However, examples cited in the handbook include denial of immigration benefits due to convictions for tax evasion and conspiracy to defraud the government.

“Before, the immigration system tried to reward people for participating in the tax system,” said Sarah Krieger, senior policy adviser at the National Immigration Law Center.

Finding applicants lacking good moral character based on that single factor “would violate not only statute and regulation, but their own recent policy,” she added.

Refusals by USCIS describe failure to pay taxes in full as an “unlawful act.” Some noted that the applicant failed to demonstrate extenuating circumstances for failure to pay all taxes on time.

Eric Welsh, a partner at Reeves Immigration Law Group, said each of the 12 attorneys at his firm received similar decisions regarding extensions and payment plans.

“That in itself does not mean that a person lacks good moral character,” Welsh said. “That’s the problem with the standard of good morals, they’re so vague.

Kathleen Campbell Walker, chair of the immigration practice group at Dickinson Wright PLLC, said one client married to a U.S. citizen was denied naturalization because of her husband’s payment plans with the IRS — even though the policy report said such arrangements should not be considered an adverse factor.

“There’s no question that we now have a different approach to using what is legal under the Internal Revenue Code,” she said.

Naturalization control

Lora Ries, director of the Center for Border Security and Immigration at the conservative Heritage Foundation, said good moral character was a “low hurdle to clear” where police officers looked for negative marks as opposed to the burden of proof on the immigrant.

“This administration is saying, no, that’s the wrong approach,” Ries said. “You have to show good moral character. It’s not just, we don’t find anything negative.”

But USCIS officers don’t have the training or background in tax law to make those decisions, said Shev Dalal-Dheini, senior director of government relations at the American Immigration Lawyers Association. Tax audits are another way for USCIS to suppress naturalizations, she said. Sal Macias, a Phoenix attorney, said immigrants are doing everything they can to meet the ever-changing standard.

He said one client, a nearly 40-year-old green card holder, was approved to take the naturalization oath. But documents reviewed by Bloomberg Law show the client was denied a payment plan. The client decided to wait a few more years before trying again.

“I was actually glad he decided to seek counseling instead of doing it himself,” Macias said. “Sometimes I feel unable to give advice that keeps changing almost every week, especially when it comes to immigration proceedings that can take months if not years to come to fruition.”

— With assistance from Erin Slowey.

To contact the reporters for this story: Andrew Kreighbaum in Washington at akreighbaum@bloombergindustry.com; Ximena Bustillo at xbustillo@bloombergindustry.com

Contact the editors responsible for this story: Genevieve Douglas at gdouglas@bloomberglaw.com; Ellen M. Gilmer at egilmer@bloomberglaw.com

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