The Internal Revenue Service recently struck a deal to share taxpayer information with Immigration and Customs Enforcement. Many undocumented immigrants file tax returns, and the Trump administration says accessing taxpayer data is a way to track down immigrants who have committed crimes or are under deportation orders.
But experts say the plan may be illegal and could end up costing the government tens of billions of dollars in uncollected taxes each year. With Tax Day now behind us, there is at least anecdotal evidence that some undocumented immigrants have been discouraged from filing.
For the last 15 years, Itzel Ramirez, who runs a tax preparation service in Milwaukee, has helped clients stay current with the Internal Revenue Service by filing with ITINs, a special Social Security-like number the agency created for foreign nationals.
“All the time, I say, ‘Do your taxes. It's good for you,’” she said.
The prevailing wisdom in immigrant communities has been that filing taxes can help efforts to remain in the U.S. — at minimum by showing proof of residency and responsible behavior.
But Ramirez said this tax season she’s processed about half as many filings as usual — hundreds fewer.
“This year, the people say, ‘No, I don't want it because maybe IRS shared the information with ICE.’ Or, ‘No, because, for what I need to do that? The government send us to Mexico or send us to our country,’ so they wait for these reasons.”
Experts worry that the ICE-IRS data-sharing pact will lead to unintended consequences just like this. And the costs to America’s bottom line could be steep.
“Unauthorized immigrants pay about $66 billion in federal income and payroll taxes and another about $30 billion in state taxes,” said Natasha Sarin, president and co-founder of the Yale Budget Lab.
If more undocumented immigrants stop filing and begin working outside of the traditional payroll system — many use fake, borrowed or stolen Social Security numbers — the annual gap between taxes owed and taxes paid could widen.
“You're going to see a $25 billion increase, we estimate, in the tax gap,” said Sarin.
Beyond economics, Michael Kaercher, deputy director of NYU’s Tax Law Center, said that there’s a humanitarian concern, as well. IRS data is simply not designed for law enforcement purposes, and he’s worried about false positives.
“The IRS might confirm that somebody with a given name lives at a particular address, only for them to be an entirely unrelated person but still end up sort of being detained, because, for example, they have a common and similar name,” Kaercher said.
In addition, the IRS does not update addresses in real time between tax filings. So those could be wrong, too.
Experts also question whether the Trump administration’s data-sharing plan is lawful in the first place.
“It breaks a precedent that is at least from 1976,” said Nina Olson, who was the National Taxpayer Advocate and now heads the nonprofit Center for Taxpayer Rights.
1976 is when Congress passed a law explicitly limiting the sharing of taxpayer data.
“Up until this year, the IRS’s position had always been, ‘We do not share information with, you know, ICE or DHS unless there is a specific investigation, specific to that person going on, and there has to be a court order requiring it,’” Olson said.
The IRS did not provide us with an interview. But the Trump administration has said its data-sharing plan is legal and limited to specific criminal cases. So far, there is no lawsuit challenging that claim.
