IRS and ICE Finalize Data-Sharing Pact, Sparking Resignations and Billions in Projected Revenue Loss

WASHINGTON — The Internal Revenue Service and U.S. Immigration and Customs Enforcement finalized a memorandum of understanding on April 7, 2025, that grants immigration officials access to sensitive taxpayer data to aid in deportation efforts. The move marks a significant departure from the IRS’s long-standing privacy protections and has already triggered high-level resignations and forecasts of substantial federal revenue losses. The agreement permits ICE to request names, addresses, and tax information for individuals facing final orders of removal or who are under federal criminal investigation. According to the National Immigration Forum, Department of Homeland Security officials have suggested the scope could be far broader, potentially using the data to help locate up to seven million of the estimated 11 million undocumented immigrants in the United States. The decision immediately prompted the resignation of Acting IRS Commissioner Melanie Krause, who was appointed earlier in 2025. In a rare public display of internal dissent, other senior officials, including chief privacy officer Kathleen Walters and chief privacy officer Teresa Hunter, also resigned, citing concerns that the agreement likely violates federal taxpayer privacy laws. Historically, the Internal Revenue Code has severely restricted the sharing of taxpayer information with other federal agencies, allowing for narrow exceptions only in specific criminal investigations. The new IRS-ICE agreement is unprecedented in its scope, focusing on civil immigration enforcement and fundamentally altering the agency's role as a neutral tax administrator. The fiscal consequences of this policy shift are projected to be severe. The Yale Budget Lab (TBL) estimates the agreement will reduce federal revenues by $12 billion for the remainder of fiscal year 2025 and an additional $25 billion in fiscal year 2026. Over the next decade, TBL projects a total revenue loss ranging from $147 billion to as high as $479 billion. The central estimate hovers around $300 billion in lost tax revenue over ten years. These losses are expected to come from a sharp decline in tax compliance among unauthorized immigrants who fear that filing taxes could expose them to deportation. Natasha Sarin, president and co-founder of the Yale Budget Lab, noted that unauthorized immigrants contribute significantly to public finances, paying an estimated $66 billion in federal income and payroll taxes and another $30 billion in state taxes annually. Many of these individuals file using an Individual Taxpayer Identification Number (ITIN), a tool the IRS created specifically for non-residents to comply with tax law. This policy shift creates a significant chilling effect on tax compliance that extends beyond the undocumented community. We've seen firsthand how fear and uncertainty drive individuals and the businesses that employ them into the informal economy, which ultimately harms everyone. The IRS has spent decades building trust to encourage filings via the ITIN program, and this agreement unravels that work overnight. For businesses with non-resident employees or partners, navigating these new risks is paramount. Early anecdotal evidence suggests the chilling effect is already taking hold. Itzel Ramirez, who operates a tax preparation service in Milwaukee, reported to Marketplace that her firm processed about half as many ITIN filings this past tax season compared to previous years, a drop of several hundred clients. She noted that clients who once saw filing taxes as a way to demonstrate good character and residency are now afraid the information will be used against them. This fear undermines a system where immigrants often contribute more than they consume in public benefits. According to an analysis by Techdirt, immigrants have a higher employment rate than the U.S.-born population and often arrive as working-age adults, paying into systems like Social Security and Medicare that they are typically ineligible to access. This effectively means they subsidize services for citizens. The erosion of taxpayer privacy should concern every business owner, regardless of their workforce composition. Once the firewall between the IRS and other enforcement agencies is breached for one purpose, it sets a precedent for others. Our firm specializes in helping clients, including non-residents, maintain compliance through services like ITIN acquisition for non-residents. In this volatile regulatory climate, professional guidance is essential to manage risk and ensure proper tax standing. For assistance, contact C&S Finance Group LLC at csfinancegroup.com. Critics argue the policy is not only fiscally damaging but also legally questionable. The agreement’s broadness appears to conflict with the spirit and letter of the Internal Revenue Code's privacy provisions. The departure of the IRS's top privacy officials underscores the deep internal concerns about the MOU's legality and its potential to permanently damage the public's trust in the tax agency. Looking ahead, immigrant rights organizations and business groups are widely expected to challenge the legality of the memorandum in federal court. Meanwhile, economists and lawmakers will be closely monitoring tax filing data in the coming quarters to quantify the agreement's impact on compliance rates and federal revenue collection, with significant implications for future budget deficits and the broader U.S. labor market.