IRS and ICE Data Sharing: How Payroll Errors Can Trigger I-9 Investigations

For the average business owner, facing an I-9 audit by the Internal Revenue Service (IRS) is stressful. This is because compliance errors can lead to serious fines, among other penalties. Now that both the IRS and U.S. Immigration and Customs Enforcement (ICE) have signed a memorandum of understanding (MOU) to share information to increase I-9 enforcement, this can cause even more problems for businesses.

If you suspect your business may be subject to an I-9 investigation, our Houston I-9 audit and compliance attorney could review your circumstances, explore ways to minimize any penalties, help improve organizational I-9 compliance, and ensure you meet all requirements to pass the inspection. Here is what you need to know about IRS and ICE data sharing and how payroll errors can trigger I-9 investigations.

Understanding the MOU Between IRS and ICE

In April 2025, the IRS and Department of Homeland Security (DHS) entered into an agreement that allows the IRS to furnish the DHS with taxpayer information for certain individuals undergoing criminal investigation.

This information, which includes their individual taxpayer identification numbers, home addresses, and other relevant details, is meant to help reinforce immigration laws. Because the information shared by the IRS is linked to their employer, it may open up any company with employees under investigation to increased scrutiny by ICE.

What Are the Common Ways Payroll Errors Can Trigger I-9 Investigations?

Several mistakes, oversights, or issues in a company’s payroll can trigger an I-9 audit, and data sharing between the IRS and DHS means ICE may become involved. Here is some information regarding each of these payroll issues.

Misclassifying a Contractor

Companies that incorrectly classify their employees as independent contractors for the purposes of avoiding taxes can find themselves being the subject of an IRS investigation, and with the MOU between the DHS and IRS, it can attract additional I-9 audits by ICE.

Disparity Between Employee Start Date and I-9 Completion Date

If there is a difference between when an employee started working for an organization and when they submitted their I-9, it can trigger an I-9 investigation.

High Employee Turnover Rates

Any organization that records an unusual amount of employee turnover, which is reflected in new and frequently updated payroll data, can find the IRS investigating its employees’ I-9s, particularly if the company is in the hospitality or construction sectors, where lots of noncitizens tend to work.

Inaccurate Social Security Numbers (SSN)

When companies fail to verify their employees’ SSNs, it can trigger I-9 audits, particularly if there are cases of mismatched, incorrect, or invalid social security numbers.

Not Re-validating Current Employees

Payroll systems should notify the human resources personnel of expiring work authorizations, and failing to do so for a prolonged period can trigger an I-9 investigation because the IRS will assume there are workers without valid work authorizations in the company.

Learn More About How Payroll Errors and IRS Data Sharing Trigger I-9 Audits Involving ICE

Protecting the business and preventing I-9 investigations is the best way to avoid an IRS or ICE audit. Organizations need to pay attention to the payroll systems and enforce compliance. Check I-9s frequently, including reviewing current employees’ work authorizations for expiring work permits and ensuring new hires complete their I-9s on their first day

Organizations should also train HR staff on current I-9 compliance requirements, ensuring they consistently keep track of updates from the USCIS and look out for common I-9 errors, such as no signature on the time and date, inaccurate work authorization status, and missing biodata, including social security number.

If you need help with preventing I-9 audits or have received a notice of inspection from either the IRS or ICE, a Houston I-9 audit and compliance lawyer from Monty & Ramirez LLP can help you set up protective measures, provide legal guidance, and minimize any penalties. Contact us today to discuss a case involving IRS and ICE data sharing: how payroll errors can trigger I-9 investigations.