>The company could be unknowingly employing illegal workers if
>forged documents, etc. were in play. (In those cases, they
>would end up having to pay taxes, and it's possible the IRS
>would catch the forgery, since the stolen identity might end
>up working in two states at once, etc.)

Yes, and the company shouldn't be punished in this case. After all, they've payed taxes like they were supposed to. And this kind of system looks very detectable from the tax records. If the odd guy is some actual US citizen duplicated(meaning the guy exists), then there would be double tax records that would show. I think that these guys would stand out from the tax records for the government to detect.

>In this case, it sounds like they were just doing the more
>common "off the book" method where you pay the people in cash
>and keep two sets of books.

Yup. A dishonest employer can cover the tracks pretty well. Punishing them is part of the solution for the problem. The ways illegals can be exploited are fairly unethical and sometimes practically slavery(I've heard that some fruit farms in southern Spain have illegals working for them in poor conditions for minimal pay. That's practically slavery.).

As for America's Mexican problem, USA should collaborate with Mexico to find a solution for that. I've heard that the African country where Spain deported it's illegals back to(they've recently deported thousands of illegals from Canary Islands) put them in jail for the illegal crossing of border. But if Mexico let's the same guys try again, then USA has a problem.