IN TEXAS, WHERE

a long-shared border with Mexico makes immigration a hot-button issue, attorney Jaime Barron deals daily with a not-so-unusual set of entrepreneurs: illegal aliens who run their own businesses.

The big quandary for these small-business owners, especially at this time of year, is whether they should file taxes. "They cannot cure how they entered [the U.S.] but they are people who are trying to comply with all the laws of this country," says Barron, an immigration lawyer in Dallas who often counsels illegal aliens who run construction or remodeling businesses. Some worry that filing taxes might call unnecessary attention to their tenuous situation. Others want to pay taxes because they think it will boost their chances of becoming citizens or at least residing here legally.

So, should illegal aliens file taxes? The simple answer is yes, just like any other business owner, they should pay taxes, Barron and other experts advise. After all, U.S. tax law requires that anyone, regardless of their immigration status, pay taxes on any income they've earned here.

Still, whether illegal-alien entrepreneurs are paying taxes to the extent they should is an open question, as there remain large barriers to doing so. The payment of taxes doesn't erase fears of deportation and there's no guarantee it will open the door to citizenship either.

Land of Opportunity

How many people are facing this dilemma? It's tough to tell. There's no official data on the number of illegal-alien entrepreneurs, but the general population of unauthorized migrants continues to swell. As many as 12 million illegal immigrants live in the U.S., up from an estimated 8.4 million in 2000, according to the Pew Hispanic Center, a nonpartisan research group in Washington. Without papers, many illegal aliens can't easily enter the work force. Those with limited English-language skills find it even more difficult to get a job. Many do the next natural thing, starting their own businesses.

A study last year by the Ewing Marion Kauffman Foundation, a Kansas City, Mo., nonprofit that supports entrepreneurship, found that immigrants in general start businesses at a higher rate than native-born Americans. About 350 out of 100,000 immigrants started a business per month in 2005, compared with about 280 out of 100,000 native-born Americans, the Kauffman study found. The study didn't distinguish between legal and illegal immigrants.

One theory as to why immigrants start more businesses is that they have traveled "from far away and, in some cases, at large expense to come here," says Rob Fairlie, an economist at University of California-Santa Cruz, who conducted the research for Kauffman. "They are self-selected at being more risk-taking and entrepreneurial."

A lot of these business owners do indeed file their taxes, usually by obtaining a nine-digit Individual Taxpayer Identification Number issued by the Internal Revenue Service, according to a number of immigration attorneys. Many, in fact, came to the country legally, through a student visa or an employer-sponsored H-1B work visa.

"A very large number of entrepreneurs are not, in my experience, the type who are going to cross the border in the dead of night," says Angelo A. Paparelli, an immigration attorney. "Most people come here in a lawful status, and then in one way or another by design or by unwitting behavior or by failure to act fall out of status. That is not an easy situation for people."

But the stakes are high. Triggering scrutiny could ruin a business. "They may have hired U.S. workers, they may have signed a lease on a building," Paparelli says. "All of that gets thrown into a situation of jeopardy."

Tax Time

But avoiding taxes often makes the situation worse. "We always encourage our clients: Let's limit the number of laws you break. Pay your taxes," says Anne Chandler, supervising attorney at the immigration clinic of the University of Houston Law Center.

As for fears the payment of taxes will draw unpleasant attention to their immigrant status, tax and immigration experts agree that payment of taxes won't tip off immigration authorities. "The bottom line is that the Internal Revenue Service believes that illegal immigrants like every other resident or citizen of the U.S. should pay taxes," says Ira Shepard, a law professor who specializes in taxation at the University of Houston. "The IRS is very open to arranging for the payment of taxes by anyone who has income sourced in the U.S."

Indeed, the IRS says its job is to collect taxes, not enforce immigration laws. Officially, the IRS is agnostic about how the money is made or by whom. Prostitutes and drug dealers, for instance, are technically required to pay taxes on income. "We're tax administrators. That's our roles," says Eric Smith, an IRS spokesman. "People can receive income and owe tax regardless of their status."

For more information, consult IRS Publication 519, U.S. Tax Guide for Aliens, here Generally speaking, noncitizens who file taxes pay at a higher rate and qualify for fewer tax breaks than U.S. citizens.

Path to Citizenship?

So, if paying taxes can't hurt, can it help? Well, sort of. Currently, there's no provision of immigration law that says tax-filing will enable a person to convert to legal status, although that policy may change. Immigration continues to be a pressing issue on Capitol Hill. Comprehensive reform, however, appears a long way off because of deep divides within and among the parties.

Still, the lawful filing of taxes can be useful to prove one's moral character, a requirement of citizenship, naturalization and certain petitions for relief, such as the Immigration through the Nicaraguan Adjustment and Central American Relief Act (NACARA) (see here. Tax records can also prove a person's years of continuous physical presence in the U.S., another requirement of NACARA and other legalization processes.

Filing taxes is "a positive factor, definitely," says Barron, the Dallas attorney. But, "it's never a guarantee."