The Tax Times: From Taxpayer to Target: Employment Tax, Immigration Enforcement, and Denaturalization Risks

The federal government has quietly built an integrated enforcement machine that links employment tax, immigration status, and even the security of U.S. citizenship itself. For practitioners, that means facts that once lived in separate silos—payroll practices, N‑400 answers, and criminal exposure—now interact in ways that can be life‑changing for clients.

In June 2025, DOJ’s Civil Division formally elevated denaturalization to one of its five top enforcement priorities, instructing lawyers to “prioritize and maximally pursue” revocation of citizenship wherever the law and evidence allow. The memo singles out, among others, undisclosed felonies, participation in criminal enterprises, and financial fraud—including tax and PPP fraud—as preferred targets, making any inconsistency between a client’s criminal/tax history and their N‑400 a potential citizenship case rather than “just” a criminal or tax problem.

At the same time, the April 7, 2025 IRS–ICE Memorandum of Understanding authorizes ICE, under IRC §6103(i)(2), to request taxpayer identifying information and selected return data in support of criminal immigration cases. Although formally “targeted,” the agreement is already being challenged in court by immigrant‑serving organizations who argue that it erodes long‑standing expectations of tax confidentiality and will chill compliance, especially among ITIN filers. For employers, the MOU is widely expected to fuel more payroll tax audits and joint investigations focused on unauthorized workers.

Denaturalization itself is pursued through civil actions under 8 U.S.C. §1451(a), which allows revocation if citizenship was illegally procured or obtained by willful misrepresentation or concealment of material facts. DOJ has used cases like United States v. Borgono to show that even “technical” omissions—such as failing to disclose pre‑naturalization involvement in a fraud scheme later prosecuted criminally—can cost a client their citizenship years after the fact. The burden is “clear, convincing, and unequivocal,” but there is no right to appointed counsel, and the government can reach back to conduct that would have been material to the original naturalization decision.

For High‑Net‑Worth Clients, The Loss Of Citizenship Can Also Be A Tax Event.
The expatriation regime under IRC §877A generally treats certain individuals as selling all of their property the day before expatriation, subject to a mark‑to‑market tax above a statutory exclusion. Legislative explanations make clear that denaturalization is treated as the expatriation date for §877A purposes, notwithstanding the “relation‑back” doctrine under 8 U.S.C. §1451(a), so the tax consequences are forward‑looking from the judgment date. That alignment creates a narrow and sensitive window for any pre‑denaturalization planning, especially when spouses or children could themselves face derivative denaturalization under the immigration laws.

For practitioners in tax, immigration, and criminal defense, the practical takeaway is straightforward: you can no longer advise in one domain without at least screening for exposure in the others. Every N‑400, every employment tax problem involving unauthorized workers, and every criminal plea by a naturalized client is now a potential denaturalization and expatriation case in disguise—and the agencies talking to each other makes it more likely those threads will be pulled.

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