IRS data-sharing deal with ICE fuels fear during tax season

Fear that a tax return could become an immigration lead has turned filing season into a gamble for people without legal status. Most undocumented immigrants cannot get a Social Security number and file instead with an Individual Taxpayer Identification Number, a system that has long pulled them into the formal tax base. Now that incentive is under strain.

The shift began with an April 2025 memorandum of understanding between the Internal Revenue Service and the Department of Homeland Security’s U.S. Immigration and Customs Enforcement, the first time the IRS formally agreed to provide taxpayer information to ICE under such an arrangement. Under the deal, ICE could submit names and addresses of suspected undocumented immigrants for verification against IRS records. Court filings later showed ICE asked for information on about 1.28 million taxpayers, while the IRS was able to verify roughly 47,000 names. For less than 5% of those verified people, the IRS gave ICE additional address information before judges stepped in.

That limited release was enough to set off a broader legal fight over confidentiality. Tax returns and return information are generally protected under Internal Revenue Code Section 6103, which bars disclosure except as authorized by law. The IRS has argued the sharing fit within a criminal-investigation exception, but the arrangement was challenged in federal court by the Center for Taxpayer Rights, Main Street Alliance, the National Federation of Federal Employees and the Communications Workers of America.

In November 2025, Washington, D.C., federal judge Colleen Kollar-Kotelly temporarily blocked further IRS sharing with ICE, saying the policy was likely unlawful under taxpayer confidentiality rules. Another judge later blocked sharing of certain taxpayer address data. The rulings did not erase the chilling effect that tax professionals say has already spread through immigrant communities, where filing a return has traditionally been seen as a way to show economic participation without triggering enforcement.

The fiscal stakes are large. The Institute on Taxation and Economic Policy estimates undocumented immigrants paid $96.7 billion in federal, state and local taxes in 2022, including $37.3 billion to state and local governments. If fear keeps more people from filing, the consequences would reach beyond deportation anxiety. Local revenue would suffer, tax compliance would weaken, and the government would lose visibility into workers who pay into the system but remain outside legal status. The fight over this data-sharing deal has become a test of whether taxpayer privacy still offers a durable reason to stay in the formal economy.