Ramhith Akurati

Associate Editor

Loyola University Chicago School of Law, JD 2026

The Internal Revenue Service (IRS) is reportedly nearing an agreement to share limited taxpayer data with Immigration and Customs Enforcement (ICE), marking a significant departure in tax enforcement and immigration policy. This potential deal would allow ICE and the Department of Homeland Security (DHS) to verify whether names and addresses match filed tax records, purportedly to facilitate immigration enforcement efforts. However, this agreement raises concerns about taxpayer privacy, legal and corporate compliance, and potential declines in tax participation, which could undermine both federal revenue tax collection and trust in the tax system.

Regulatory compliance implications

For decades, the IRS has operated under strict taxpayer privacy laws, with limited exceptions allowing data disclosure for specific criminal investigations. The agency has historically encouraged tax compliance among all individuals, regardless of immigration status, by issuing Individual Taxpayer Identification Numbers (ITINs) to those without Social Security numbers. For example, Deferred Action for Childhood Arrivals (DACA) recipients are legally allowed to work in the United States using ITINs, even while their immigration status remains in flux. This practice has increased federal tax revenues and established compliance patterns for individuals who may later seek legal residency or citizenship.

However, the potential deal between ICE and the IRS raises concerns about regulatory compliance in several key areas, including taxpayer privacy and tax compliance.

Taxpayer privacy concerns

The potential IRS-ICE agreement could erode this public trust. If taxpayers, especially those in mixed-status families, believe their data may be used for immigration enforcement, they might hesitate to file tax returns or provide accurate information. This not only affects the individuals directly impacted but could also create compliance issues for businesses employing immigrant workers who file their taxes using their ITINs.

Additionally, frequent data sharing between the IRS and ICE may push the boundaries of existing taxpayer privacy laws. The IRS is permitted to disclose tax information in certain criminal investigations, but a broad, systematic exchange of taxpayer data with immigration authorities could lead to legal challenges. Critics argue that the agreement could set a precedent for expanded data sharing across government agencies, raising concerns about civil liberties and government overreach.

Impact on tax compliance

If immigrants fear that filing taxes could expose them to deportation, many may choose not to file at all. This could lead to a substantial drop in tax compliance, reducing revenue collected by the federal government. In 2022 alone, there were 5.8 million active ITIN holders who contributed to the tax base. If a large portion of these taxpayers withdraw from the system, the effects could ripple across both federal and state tax revenues.

Moreover, employers who rely on undocumented workers may also face increased scrutiny. If IRS data helps ICE verify employment status, worksite enforcement actions could escalate, putting businesses at risk of penalties and legal challenges. Companies will need to reassess their compliance frameworks, particularly around Form I-9 verification and employment eligibility documentation. Form I-9, required under the Immigration Reform and Control Act of 1986, verifies an employee’s identity and authorization to work in the U.S., helping businesses comply with federal hiring laws. Failure to complete or maintain I-9 forms can result in audits by ICE, leading to fines, potential criminal liability for knowingly hiring unauthorized workers, and even being removed from government contracts.

Legal and ethical considerations

The IRS’s core mission is tax collection, not immigration enforcement. Historically, the agency has maintained a separation between tax administration and immigration policy to ensure broad compliance. However, this agreement could blur the lines between these functions, raising concerns about the ethical implications of using tax data in ways that may deter individuals from complying with the law.

Legal experts warn that the agreement may face constitutional and statutory challenges. The taxpayer privacy protections outlined in the Internal Revenue Code are designed to prevent misuse of tax information. If challenged in court, the government would need to demonstrate that the data-sharing agreement does not violate these protections. Past legal battles over data privacy and enforcement priorities suggest that this policy could become a flashpoint for litigation.

Beyond the legal aspects, there are significant ethical considerations. Many immigrants who file taxes do so in good faith, often in hopes of adjusting their legal status in the future. If tax compliance is weaponized against them, it could create unintended consequences, including an increase in undocumented economic activity as individuals attempt to avoid detection.

Looking ahead

The potential IRS-ICE agreement is part of a broader governmental shift toward greater inter-agency data sharing for law enforcement purposes. While proponents argue this enhances national security, critics warn of unintended consequences, including reduced tax compliance and legal challenges over privacy rights.

Regulatory compliance professionals, tax advisors, and corporate legal teams must closely monitor this evolving policy. Businesses employing foreign workers should review their compliance frameworks to mitigate risks associated with potential audits or enforcement actions stemming from tax record disclosures.

As this agreement moves forward, balancing tax enforcement, privacy, and immigration policy will remain a crucial challenge for regulators and lawmakers alike. Lawmakers may need to revisit existing taxpayer privacy laws to clarify the extent to which tax data can be used for immigration enforcement. Additionally, advocacy groups and legal organizations may challenge the policy in court, leading to potential judicial intervention that could either uphold or limit the agreement’s scope.

For businesses, staying compliant with tax and immigration laws will require more stringent internal controls and proactive risk management. Employers should ensure that hiring practices adhere to federal regulations and that tax filings remain transparent to avoid potential legal complications.

On a broader level, this policy change could prompt discussions about comprehensive immigration reform. If tax compliance is affected significantly, policymakers may be forced to consider alternative approaches to address both revenue collection and immigration enforcement without undermining public trust in tax administration.

As this issue unfolds, ongoing dialogue among stakeholders, including government agencies, businesses, advocacy groups, and the legal community, will be essential in shaping a balanced approach that upholds regulatory integrity while safeguarding taxpayer rights.