The Internal Revenue Service (IRS) is close to finalizing an agreement with the Department of Homeland Security to share the date of migrants who are suspected of being in the U.S. unlawfully. Experts, however, are sounding the alarms about the possible fiscal hits that such a deal could bring.
The agreement would require Immigration and Customs Enforcement (ICE) to submit names and addresses of people it suspects of living in the country unlawfully to the IRS, which the tax agency would then cross-reference and confirm, a person familiar with the matter told CNN.
Tax information has generally been closely held within the IRS, and laws prohibit improper disclosure of taxpayer information. The IRS has encouraged undocumented migrants to file taxes, a process that includes providing the agency with their addresses, employers and earnings. However, collaboration between ICE and the IRS could pose detrimental fiscal consequences, a new Axios report warns.
Undocumented immigrants paid $96.7 billion in federal, state, and local taxes in 2022, per the Institute on Taxation and Economic Police. While much of that came in the form of sales and other taxes over which they have little control, about $57 billion is made up of "taxes that are likely to be prone to noncompliance," Carl Davis, research director of ITEP told Axios.
If undocumented immigrants stop filing tax returns in fear that the IRS will pass on their information to immigration authorities, that could actually increase total tax revenues this year, as the government holds onto withheld money that would otherwise be returned as a tax refund.
However, over the medium term, undocumented immigrants in fear of the immigration authorities would be likely to move out of any job where their employer withholds taxes and reports their pay to the IRS— and work instead in more cash-based, informal sectors. Because those jobs are generally lower-paid, even gains like sales tax revenues would likely decrease.
Self-employed undocumented immigrants will also be much less likely to file tax returns, after many years in which they have been encouraged to do so on the explicit promise that their personal information would not be shared with the rest of the government, per Axios.
Already, the compliance rate for undocumented immigrants is low, at about 60%. If that were to fall to, say, 30% then the fiscal cost would be more than $28 billion a year, according to ITEP.
It remains unclear when, or if, the deal will materialize. Last month, acting IRS Commissioner Doug O'Donnell rejected a DHS request for data for 700,000 suspected undocumented immigrants, deeming it unlawful. He retired the following day after 38 years with the agency.
His successor, Melanie Krause, has reportedly shown greater willingness to collaborate with DHS officials, according to The Hill. The Trump administration also replaced the IRS's top attorney, who had opposed sharing taxpayer data across agencies.
Two immigrant rights groups in Chicago also sued the Treasury Department and IRS earlier this month and asked a judge to block the sharing of taxpayers' data with ICE or DHS. The groups claimed federal law "forbids" the IRS from giving this data to immigration authorities, because ICE and DHS aren't listed as exceptions to the confidentiality rules in the tax code.
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