H.R. 3715: New Illegal Deduction Elimination Act

This bill, titled the New Illegal Deduction Elimination Act, aims to modify the Internal Revenue Code to prevent businesses from deducting wages paid to unauthorized aliens from their taxable income. Here's a breakdown of its key provisions:

Prohibition on Deductions for Unauthorized Wages

• The bill specifies that businesses cannot deduct wages for work performed by unauthorized aliens, which are defined under existing immigration law.
• The term "wages" includes all forms of payment for employment, not just cash.
• However, if employers use the E-Verify system (a federal program that verifies an employee's eligibility to work in the U.S.) and receive confirmation of eligibility, they may still deduct wages paid to those employees.
• The Secretary of the Treasury must prove that any wages claimed as deductions were indeed paid to unauthorized workers in tax audits, and the audit cannot solely be based on these deductions.

Time Limit for Tax Assessments

The bill enforces a six-year limit for assessing taxes on deductions that are found to violate the new provision regarding wages for unauthorized workers. This means that the government can only pursue tax assessments related to these deductions within six years after a taxpayer files their return.

Information Sharing for Enforcement

• The bill mandates the creation of a program for federal agencies, including the Social Security Administration, Department of Homeland Security, and the Treasury, to share information that could help identify unauthorized aliens.
• Employers found to have claimed wage deductions for unauthorized employees may have their taxpayer identity information shared with the relevant federal agencies for enforcement purposes.

Modification of the E-Verify Program

The bill proposes changes to the existing E-Verify program, making it available as a voluntary option for employers to verify the work eligibility of all new hires or current employees. If employers participate in this program and receive confirmation of employment eligibility, they will be presumed in compliance with immigration laws regarding the hiring of those employees.

• Employers can condition job offers on E-Verify confirmation.
• The E-Verify system will also be available for existing employees, providing a legal framework for ongoing verification of work eligibility.

Effective Date

Once enacted, the provisions of this bill would take effect immediately, although the changes to deductible wages would apply to taxable years beginning after December 31, 2024.

Summary

In summary, the New Illegal Deduction Elimination Act aims to restrict tax deductions for wages paid to unauthorized workers, incentivize the use of the E-Verify program among employers, and create a framework for federal agencies to enforce compliance regarding employment eligibility.

Relevant Companies

• CMI (Cummins Inc.): This company might be affected due to its large workforce in manufacturing, where the employment of unauthorized workers may risk deductions in wage payments if employers do not confirm eligibility through E-Verify.
• KO (Coca-Cola): Given its extensive distribution and bottling operations, Coca-Cola may also feel the impact if there are employees without proper work authorization, potentially affecting payroll deductions.
• PEP (PepsiCo): Similar to Coca-Cola, PepsiCo, which operates in the food and beverage industry, may face challenges in hiring practices related to unauthorized workers.