IRS Plan to Share Immigrant Info Tests Confidentiality Exception

The IRS’ agreement to share undocumented immigrants’ data with the Department of Homeland Security has the potential to broaden an exception to a ban on disclosing taxpayers’ sensitive personal information.

Former government officials and plaintiffs in a lawsuit seeking to prevent the IRS from sharing noncitizen taxpayers’ information now fear a broad information-sharing campaign based on an exception that allows disclosure to aid criminal investigations, considering the Trump administration’s stance that all undocumented immigrants are criminals.

“When you start giving the master key out to more people, you exponentially increase the risks,” said Lily Batchelder, a professor of taxation at New York University School of Law and former assistant secretary for tax policy in the Biden administration.

While information sharing isn’t new, the scope could be—IRS officials typically only give out information on a need-to-know basis—she said during an NYU panel discussion Wednesday.

Allowing more opens the door to data leaks and raises the risk of identifying and pursuing the wrong taxpayer, Batchelder said.

Undocumented immigrants likely also would be discouraged from filing taxes: Yale University’s Budget Lab recently estimated the deal would reduce tax revenue by $313 billion over the next decade because of fears their personal information could be used to deport them.

Mary S. Hoopes, a professor at Pepperdine University’s Caruso School of Law, thinks the IRS/DHS information-sharing agreement isn’t likely to hold up in court.

“It really seems as though a broad sharing of information is not going to fit” into the exception to taxpayer confidentiality, she said.

IRS Weaponizing

IRC Section 6103 generally prohibits the IRS from sharing taxpayer records, even with other agencies. But it carries certain exceptions, notably when an individual is under criminal investigation.

In their complaint, two Chicago immigrant support groups expressed concern about the latitude Section 6103 gives to sharing the personal information of “criminals” and how the Trump administration defines that term.

At a January press conference, White House Press Secretary Karoline Leavitt said all undocumented immigrants “broke our nation’s laws, and, therefore, they are criminals, as far as this administration goes.”

Ana Guajardo, executive director of Centro de Trabajadores Unidos—one of the plaintiffs in the case—said at a March press conference that broad information sharing would “weaponize” the IRS.

But Sean Spicer, who served as White House press secretary in the first Trump administration, said the efforts may be an attempt to solidify Republican immigration policy objectives in a way that can’t be undone by a future president, like an executive order could.

“We need to think smartly about locking in some of these issues that we want legislatively,” said Spicer, who now leads a Virginia consulting firm focused on aiding Republican office-seekers.

“The reason Biden was able to undo Trump, then Trump was able to undo Biden, is that what is done by executive order can be undone by executive order. All these things we say we care about, if we don’t codify them by legislation, if we as Republicans lose even a single chamber of Congress, that impedes our ability to get comprehensive immigration done,” he said.

Andrew “Art” Arthur, resident fellow with the Center for Immigration Studies, which advocates for lower immigration levels, said the analysis of government failings leading up to the Sept. 11, 2001, attacks criticized the “stovepiping” of information as government agencies siloed information from one another.

“We have plenty of oversight of both DHS and its immigration function and the IRS, and they will zealously enforce the laws,” Arthur said. “So information sharing with protections is ideal.”

The IRS and DHS didn’t respond to requests for comment.

Letter of the Law

Judge Dabney L. Friedrich of the US District Court for the District of Columbia last month rejected the plaintiffs’ bid for a temporary restraining order before the IRS-DHS deal was reached. The order would have blocked the IRS from divulging undocumented taxpayers’ information, but the court ruled that the groups failed to show an imminent risk the agency would do so.

Counsel for the IRS emphasized during the TRO hearing that the agency would obey the letter of the law, noting the tax code contains exceptions allowing for the sharing of taxpayer information with DHS.

Yet the Treasury Department earlier this week disclosed the agreement with DHS to the court, a move that prompted the acting IRS commissioner and the agency’s privacy chief both to announce they would leave their posts.

Friedrich has set an April 16 hearing on the plaintiffs’ request for a preliminary injunction.

‘Chilling Effect’

Using individual taxpayer identification numbers (ITINs), undocumented immigrants paid about $96.7 billion in federal, state, and local taxes in 2022, according to data from the Institute on Taxation and Economic Policy. About one third of that goes to Social Security, Medicare, and unemployment insurance—benefits those immigrants are barred from receiving.

That data estimates an undocumented population of 10.9 million people in 2022, whose rate of tax compliance is around 60%, ITEP Research Director Carl Davis said.

“If you have people filing all this tax information last year and now they’re too fearful to file a return, over time I don’t see any way that this policy is sustainable,” he said. “They will seek employers with less paperwork, or become less compliant.”

Hoopes said the court will need to weigh the extent to which the ITIN system and prior IRS safeguards led to a sense of trust in the system that is now being breached.

Courts must consider if there’s a “chilling effect” on taxpayer compliance, especially if the ITIN system encouraged immigrants to develop a track record of taxpaying to aid a later effort to become citizens, she said.

“There is all kinds of reliance built in that immigrants are opting into the system to comply with the law, to use all that information against them would be patently bad public policy as well as not being all that effective,” Hoopes said.