The Internal Revenue Service's (IRS) acting commissioner, Melanie Krause, is set to resign from her post over her disagreement with the sharing of agency data with Immigration and Customs Enforcement (ICE). She is the third IRS leader to step down from her post this year.
The New York Times also reported that other top IRS officials have also left the agency or are planning to do so. It is unclear who will replace her.
Several organizations have sued the Department of Homeland Security (DHS), ICE and their top officials over the measure, which would require 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.
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, another Axios report has warned.
The lawsuit claims that DHS and ICE cannot legally inspect or use confidential taxpayer information for immigration enforcement. The plaintiffs, which now include Inclusive Action for the City and Somos Un Pueblo Unido, argue that the plan violates taxpayer privacy protections established by law. Attorneys for the plaintiffs contend that the effort circumvents congressional authority over how tax information is shared among agencies.
The lawsuit comes amid broader concerns that the Trump administration seeks to use tax data to facilitate deportations. Advocates warn that such actions could erode trust in the tax system and harm the economy.
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.
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