Treasury and Homeland Security to Share Data on Undocumented Immigrants

Action: The Treasury Department negotiated an agreement with the Department of Homeland Security providing that the Internal Revenue Service (IRS) will share personal information, including tax information, on undocumented immigrants with Immigration and Customs Enforcement (ICE).

What it does: In a court filing, the Federal government revealed a partially redacted memorandum of understanding between the Treasury Department, which oversees the IRS, and the Department of Homeland Security, which oversees ICE, to allow ICE to request personal information on undocumented immigrants from the IRS. In its request, ICE must provide the IRS the name and address of the person of interest, the tax periods relating to the request, the relevant Federal criminal statutes, and the reasons disclosing the information might be relevant to the non-tax-related criminal investigation or proceeding. (By statute, illegal entry of itself is generally a civil, not a criminal violation, though DHS has authority to refer cases of illegal entry or reentry to the Justice Department.) The Administration’s goal is to cross-check the tax records of undocumented immigrants under criminal investigation to provide ICE with current address information to pursue deportations and other legal proceedings.

Key Insights

• While there are agreements between tax jurisdictions (e.g., Federal, state, local) to deter tax evasion, and while the IRS is subject to subpoenas and can participate in an enforcement action where a tax crime can be established, the line between tax payments and enforcement has historically been exceptionally strong.
• For decades, the IRS has been tightly prohibited by Federal law from sharing confidential taxpayer information, even with other Federal government agencies. The IRS also has a longstanding policy not to share the information of taxpayers suspected of being in the country illegally with immigration enforcement agencies to encourage compliance with tax laws.
• As with other US residents, immigrants of all legal statuses must pay taxes, including Federal income and payroll taxes. Undocumented immigrants working in traditional employment arrangements (not under-the-table cash payments) typically receive an individual taxpayer identification number (ITIN) from the IRS to assist with filing Federal taxes.
• The Yale Budget Lab has estimated that undocumented immigrants paid $66 billion in Federal taxes in 2023, of which roughly $43 billion was payroll taxes for Social Security and Medicare and roughly $22 billion was individual income taxes. This is consistent with an Institute on Taxation and Economic Policy estimate that stated that undocumented immigrants paid $59.4 billion in Federal taxes in 2022. (Undocumented immigrants cannot legally obtain Social Security and Medicare benefits.)
• The Yale Budget Lab also modeled the impact of lost revenue from the new agreement. While there is uncertainty regarding how undocumented immigrants will respond, the Yale Budget Lab estimates between $150 billion and $500 billion in lost Federal tax revenue over the next decade, with a midpoint of approximately $300 billion in lost revenue.
• Aside from a potential reduction in the number of undocumented immigrants in employment and paying taxes, the agreement could discourage compliance with tax laws by undocumented immigrants, leading to further lost revenue.
• Multiple media reports have stated that acting IRS Commissioner Melanie Krause and other IRS leaders are planning to leave the agency in response to this policy and other actions from the Administration.