IRS Shares Tax Data with ICE Under Memorandum of Understanding, Undocumented Filings Drop

(UNITED STATES) — The Internal Revenue Service and U.S. Immigration and Customs Enforcement signed a Memorandum of Understanding on April 7, 2025, opening a channel for immigration agents to request taxpayer information on people facing final removal orders or under federal criminal investigation and setting up a clash between tax collection and immigration enforcement.

The IRS-ICE data-sharing agreement allows ICE to seek names, addresses and tax data. It marked a break from the IRS’s longstanding assurance that immigrant tax information would remain confidential and outside the reach of immigration enforcement.

That shift carries a direct fiscal risk. Undocumented immigrants pay an estimated $90 billion in federal, state and local taxes each year, and about two-thirds of that total comes from payroll taxes. The Budget Lab at Yale estimated that unauthorized immigrants paid $66 billion in federal income and payroll taxes in 2023 alone.

The concern is not limited to one group of filers. A one percentage point reduction in tax compliance across the overall population would cut federal revenue by $40 billion. Even a smaller drop in filing by undocumented immigrants could still cost the federal government billions, because many workers would stop filing individual income taxes even as employers continued withholding payroll taxes.

Filing taxes had long been treated by many undocumented immigrants as a relatively safe act, one rooted in the belief that tax records would remain shielded from immigration enforcement. The new agreement altered that calculation. Tax data that once served only the revenue system can now help ICE identify where a person lives.

Current addresses sit at the center of that fear. ICE can use updated taxpayer information to locate and target individuals for arrest or detention, especially people without immigration status, people with pending cases, or people who already had contact with immigration authorities. That prospect is expected to produce a chilling effect on compliance.

The mechanics of the arrangement have already drawn scrutiny. In June 2025, ICE requested 1.28 million taxpayer records from the IRS. On August 7, 2025, the IRS provided addresses for 47,289 individuals.

Those disclosures later became central to court findings that the system was not operating within legal limits. A federal judge found that the IRS violated federal law about 42,695 times by sharing addresses through improper “TIN Matching” procedures. Only 9.7% of the 47,289 addresses were properly matched.

Dottie Romo, the IRS chief risk and control officer, said in a February 11 declaration that the agency may have supplied ICE with taxpayer addresses based on “incomplete or insufficiently populated” address information. Nearly 5% of the disclosures involved potentially flawed data.

The problem was built into the automated check the agency used. The system verified only that address fields were not blank. It did not identify incomplete entries such as zip codes marked “Failed to Provide” or “Unknown Address,” leaving open the possibility that ICE received location data that was unreliable at the point of disclosure.

That combination of privacy concerns and data quality problems prompted two separate federal court interventions. In November 2025, U.S. District Judge Colleen Kollar-Kotelly ruled that the agreement likely violated taxpayer confidentiality law in Center for Taxpayer Rights v. Internal Revenue Service. Her order temporarily blocked the arrangement.

A second judge reached a similar conclusion months later on different grounds. In February 2026, U.S. District Judge Indira Talwani issued another temporary block, citing violations of taxpayer privacy rights and the risk of wrongful arrests caused by mistaken identity. Talwani pointed to a practical problem in immigrant communities, where people often share common last names and may live in shared housing.

The court findings cut at two pillars of the agreement at once: whether the IRS can lawfully share the data at all, and whether the information sent to ICE is accurate enough to support enforcement action. The first question reaches taxpayer confidentiality law. The second reaches the risk that bad address data or weak matching methods could direct agents to the wrong household or the wrong person.

The government is appealing both decisions, keeping the legal fight active even as the arrangement remains blocked. Those appeals will help determine whether the April 2025 Memorandum of Understanding survives, is narrowed, or remains frozen by court order.

What is already clear from the record is that the policy’s impact extends beyond immigration enforcement. The federal government depends on tax compliance from a broad workforce that includes undocumented immigrants, and the amounts at stake are large. A system designed to collect revenue now faces evidence that sharing tax data with ICE can deter filing, expose errors in disclosure procedures, and threaten a stream of payments measured in tens of billions of dollars.

The dispute has also reshaped a long-standing message that paying taxes could demonstrate compliance with civic obligations without creating deportation risk. Once that premise changed, the tax system lost one of its strongest practical assurances for undocumented workers. The appeals now before the courts will decide whether the IRS-ICE data-sharing agreement can continue in any form, but the conflict has already shown how quickly enforcement policy can collide with the government’s own interest in getting people to file and pay.