IRS Cooperation with ICE Will Damage Public Trust, Putting Tax Revenues in Jeopardy

Attempts by the Department of Homeland Security to secure private information from the IRS on people who file taxes with an Individual Taxpayer Identification Number is a violation of federal privacy laws that protect taxpayers. It is also a change that could seriously damage public trust in the IRS, which could jeopardize billions of dollars in tax payments by hardworking immigrant families.

The recent memorandum of understanding between the IRS and US Immigration and Customs Enforcement (ICE) – which led to the resignation of the Acting IRS Commissioner – establishes procedures for requesting taxpayer information under IRC section 6103(i)(2) for criminal investigations. But that section is clear: taxpayer information is confidential unless Congress specifically authorizes disclosure. No such authorization exists for routine immigration enforcement.

Using the IRS and its resources for immigration enforcement is a departure from the agency’s core mission, which is to administer tax laws. What’s more, federal privacy law unambiguously protects all taxpayer information, meaning tax returns and taxpayer information must remain confidential except under very specific circumstances that do not include immigration enforcement. This weaponization should worry all filers, because if this can be done without congressional authorization then it can be done to other groups as well.

Besides the privacy implications, there are other important considerations when we look at how this will affect immigrant families.

We know that undocumented immigrants pay taxes. Recent ITEP research finds that undocumented immigrants paid $96.7 billion in taxes in 2022, with more than a third of that amount ($37.3 billion) going to states and localities.

Deporting immigrants on a large scale would cause most of those revenues to vanish from public coffers. Both income and sales tax revenues would be reduced as these individuals would no longer be in the U.S. earning taxable incomes and making taxable purchases.

We predict a $7.9 billion reduction in annual revenue for every 1 million undocumented people who exit the country, with $2.5 billion of that coming out of state and local budgets.

But these figures almost certainly understate the true revenue cost of deportations. They don’t account for losses to business outputs and workforce declines in sectors like construction and agriculture. They don’t consider the effects these efforts will have on documented immigrants who may be erroneously swept up in this. And they don’t try to measure how deportations may lead immigrant families to retreat from public view, constrained to less formal, off-the-books employment at jobs less likely to withhold income tax from paychecks.

Our analysis suggests that every 10-percentage point drop in the income tax compliance rate of undocumented immigrants would lower federal tax revenue by $8.6 billion per year, and state and local tax collections by $900 million per year.

Potential Tax Revenue Loss from Reduced Income Tax Compliance Among Undocumented Immigrants

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Note: Calculations begin from a starting point of 60 percent compliance, as discussed in ITEP’s 2024 report titled Tax Payments by Undocumented Immigrants. States with zero impact do not levy personal income taxes. Figures may not sum to totals due to rounding.

Source: Institute on Taxation and Economic Policy, February 2025

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