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The Internal Revenue Service and U.S. Immigration and Customs Enforcement have long operated in separate spheres. The IRS collects taxes. ICE enforces immigration law. The IRS falls under the Department of the Treasury, while ICE is a part of the Department of Homeland Security (DHS). For decades, a legal wall separated their missions, especially when it came to taxpayer privacy.
A 2025 inter-agency agreement under the Trump administration ended that separation. The deal allows ICE to access IRS taxpayer data for deportation efforts, breaking with nearly 50 years of tax privacy protections.
The arrangement has triggered legal challenges, resignations at the IRS, and warnings from economists about lost tax revenue. It represents a fundamental shift in how the federal government balances tax compliance against immigration enforcement.
Two Different Agencies
To grasp why this matters, start with what these agencies actually do. The IRS’s law enforcement arm and ICE’s two main divisions were designed for different purposes. The blurring of those purposes sits at the heart of this fight.
IRS Criminal Investigation
The law enforcement branch of the IRS is called Criminal Investigation, or IRS-CI. Founded in 1919, its mission is investigating criminal violations of tax law and related financial crimes.
IRS-CI is the only federal agency authorized to investigate criminal tax violations. This exclusive authority makes it essential to federal law enforcement.
While tax enforcement is its core job, IRS-CI’s expertise in following money has made it crucial in fighting broader criminal activity. Its special agents trace money trails in cases involving public corruption, corporate fraud, drug trafficking, and terrorism financing.
The agency’s roughly 2,100 special agents are fully sworn federal law enforcement officers who operate worldwide. They carry firearms, execute arrests, and conduct search warrants in dangerous situations. This isn’t desk work—it’s tracking criminal money through complex global financial systems.
ICE’s Dual Mission
U.S. Immigration and Customs Enforcement was created in 2003 as part of the government reorganization after September 11. ICE absorbed functions from the Immigration and Naturalization Service and the U.S. Customs Service.
The merger created an agency with two distinct missions, executed by two separate branches.
Homeland Security Investigations
Homeland Security Investigations is the principal criminal investigative arm of the Department of Homeland Security. It’s the second-largest investigative agency in the federal government.
HSI’s mission is investigating, disrupting, and dismantling terrorist and transnational criminal organizations. With over 7,100 special agents, HSI investigates federal crimes involving illegal cross-border movement of people, goods, money, and technology.
Its work covers human smuggling and trafficking, drug smuggling, money laundering, cybercrime, and illegal export of weapons and technology.
Enforcement and Removal Operations
Enforcement and Removal Operations is the component responsible for civil immigration enforcement. ERO officers identify, apprehend, detain, and remove people who are in the United States in violation of immigration law.
This is the most public-facing and controversial branch of ICE. It carries out deportations and manages immigration detention facilities.
Where the Tension Lies
The fundamental tension stems from ICE’s internal division. IRS-CI and ICE’s HSI are naturally aligned—both investigate transnational criminal organizations. Their collaboration on complex financial cases is routine and uncontroversial.
The controversy arose when the Trump administration used the mechanisms of criminal investigation—specifically, access to the IRS’s protected taxpayer database—to serve the civil enforcement objectives of ERO. This blurred a critical line between criminal law enforcement and civil administrative functions.
| Agency | Primary Mission | Type of Enforcement | Typical Targets |
|---|---|---|---|
| IRS-CI | Investigate criminal violations of the tax code and related financial crimes | Criminal | Tax evaders, money launderers, financial fraudsters |
| ICE HSI | Dismantle transnational criminal organizations that exploit global systems | Criminal | Human traffickers, drug cartels, international gangs, intellectual property thieves |
| ICE ERO | Uphold civil immigration laws through apprehension, detention, and removal | Civil/Administrative | People in the U.S. without authorization or with final removal orders |
The Wall Protecting Taxpayer Privacy
For nearly 50 years, a legal firewall has protected American taxpayer confidentiality. This principle enabled programs that brought millions of immigrants into the tax system, based on a promise of privacy.
Section 6103 of the Tax Code
Modern taxpayer privacy law is rooted in Section 6103 of the Internal Revenue Code. Congress significantly strengthened this statute in 1976 in direct response to Watergate, when the Nixon administration used confidential IRS records to harass political opponents.
To prevent such abuses, the revised law established a broad rule: tax returns and related information are strictly confidential. The IRS cannot disclose this information to anyone, including other federal agencies, unless disclosure is explicitly authorized by law.
This guarantee of confidentiality is widely considered the foundation of America’s voluntary tax compliance system. It relies on taxpayers trusting that sensitive financial information won’t be used against them for non-tax purposes.
The law contains narrow exceptions for law enforcement. Section 6103(i)(1) allows disclosure of full tax returns, but only with an order from a federal judge. Section 6103(i)(2) allows federal agency heads to obtain limited “return information”—like a name and address, but not the full return—through a written request to the IRS, without a court order.
Both the IRS and courts have historically interpreted these exceptions narrowly to preserve confidentiality.
The Individual Taxpayer Identification Number
In 1996, the IRS created the Individual Taxpayer Identification Number. The ITIN program had a single purpose: providing a tax-processing number for people required to file U.S. taxes but ineligible for a Social Security Number.
This category includes many noncitizens—foreign students, certain spouses of visa holders, and undocumented immigrants. The program was designed to ensure that all individuals earning U.S. income, regardless of immigration status, could comply with their legal obligation to pay taxes.
From the beginning, the ITIN program’s success depended on trust. The IRS, immigration advocates, and tax preparers consistently assured filers that their information would be used for tax purposes only and protected by Section 6103.
This promise created a safe harbor, encouraging millions of undocumented immigrants to file taxes without fearing deportation. The IRS website makes clear that an ITIN doesn’t authorize work or provide immigration status—it’s purely a federal tax tool.
A 2006 Government Accountability Office report explicitly noted that the IRS wasn’t authorized to share taxpayer data for worksite enforcement and that IRS officials worried doing so would harm tax compliance.
The Economic Compact
The ITIN program created a stable arrangement between the U.S. Treasury and the undocumented population. The government collected billions in income and payroll taxes from people largely ineligible for federal benefits like Social Security or the Earned Income Tax Credit.
In 2022 alone, undocumented immigrants paid an estimated $96.7 billion in federal, state, and local taxes. In exchange for this compliance, these taxpayers received an assurance that filing taxes wouldn’t make them deportation targets.
The 2025 agreement broke a 20-year promise, fundamentally altering the risk calculation for every ITIN filer in the country.
Trump’s Enforcement Overhaul
The firewall between tax administration and immigration enforcement wasn’t dismantled by a single action. A series of executive orders issued at the start of the Trump administration in January 2025 created the framework for bringing the IRS into immigration enforcement.
The January 2025 Executive Orders
On his first day in office, January 20, 2025, President Donald Trump signed Executive Order 14161, directing agencies to enhance screening procedures. This was followed by “Protecting the American People Against Invasion,” which fundamentally altered immigration enforcement.
The order revoked the previous administration’s targeted enforcement priorities, which focused on people convicted of serious crimes or who posed national security threats. In its place, the order established a new policy: to “faithfully execute the immigration laws against all inadmissible and removable aliens.”
This simple change had a profound effect. It made any person in the country without authorization an equal priority for deportation, regardless of community ties, criminal record, or family.
The orders directed a massive expansion of enforcement tools. They called for increasing use of expedited removal—a fast-track deportation process that bypasses immigration courts—expanding detention capacity, and aggressively promoting 287(g) agreements, which deputize state and local police to perform federal immigration agent functions.
Together, these directives signaled an unprecedented mobilization of federal, state, and local resources for mass deportation.
Using Federal Agencies for Deportation
Critics, including the ACLU, argued the administration’s goal was to “redeploy as many parts of the federal government as possible to serve a mass deportation system.” This strategy pushed agencies far outside their traditional roles.
New rules granted law enforcement powers to officers at U.S. Citizenship and Immigration Services—the agency responsible for granting citizenship and green cards—allowing them to make arrests and carry firearms. This blurred the line between service and enforcement functions.
Reports documented that the Department of Homeland Security “deputized Internal Revenue Service officers to help immigration enforcement, and attempted to force the IRS as well as Medicare and Medicaid to share information with DHS for immigration enforcement purposes.”
This was the first clear signal that the administration intended to breach the wall protecting taxpayer data.
The shift represented a change in philosophy. Previous administrations treated immigration as a complex policy issue to be managed through priorities. The Trump administration reframed it as an existential threat.
The use of language like “invasion” in official executive orders elevated the issue from routine law enforcement to national defense. This rhetorical framing provided political justification for taking extraordinary measures and overriding institutional norms, including taxpayer confidentiality.
The 2025 Agreement
The administration’s directive to enlist the IRS in immigration enforcement culminated in a formal agreement. The 2025 Memorandum of Understanding between the IRS and ICE created a direct pipeline for taxpayer data.
How It Works
On April 7, 2025, the IRS and ICE finalized an MOU establishing a framework for sharing sensitive taxpayer information to aid deportation efforts. The agreement permits ICE to request, and the IRS to confirm, names, addresses, and tax data for people who meet one of two criteria: they’re under a final order of removal, or they’re the subject of a federal criminal investigation.
To navigate the strict prohibitions of Section 6103, the administration’s lawyers used the narrow exception for non-tax criminal investigations in Section 6103(i)(2). The MOU’s legal justification was grounded in a specific federal crime: 8 U.S.C. § 1253(a)(1), which criminalizes “willful failure to depart” from the United States after receiving a final removal order.
By framing requests as part of a criminal investigation into this offense, ICE could argue it wasn’t seeking data for merely civil purposes but for a legitimate criminal matter, satisfying the statute’s requirements.
The process outlined in the MOU requires ICE to submit a formal written request to the IRS identifying the individual, the criminal statute being investigated, and why the tax information is relevant. The IRS then checks its databases and verifies the information, primarily the person’s last known address.
Mass Resignations
The execution of the MOU met fierce internal resistance at the highest IRS levels. According to news reports, the agency’s own lawyers privately counseled DHS and Treasury Department heads that the proposed deal likely violated federal privacy law.
Officials pushed the agreement through despite these warnings, and the backlash was swift and public. Melanie Krause, the Acting IRS Commissioner, resigned. She was joined by Chief Privacy Officer Kathleen Walters and Chief Financial Officer, Teresa Hunter.
This public exodus of senior leadership was unprecedented. It signaled a profound institutional crisis.
The resignations were more than a political statement. They represented a defense of the IRS’s core identity. The agency’s entire ability to function relies on maintaining public trust to ensure high rates of voluntary compliance that fund the government. The departing leaders evidently believed the MOU would inflict irreparable damage on this mission.
Their actions amounted to a powerful insider’s verdict: the administration’s legal justification was characterized as a pretext for a policy that violated fundamental principles of tax administration.
Data Already Flowing
The MOU wasn’t merely theoretical. Court filings revealed that in June 2025, ICE submitted its first massive request to the IRS processed under the MOU, seeking last known addresses for 1.28 million people. In August 2025, the IRS complied, transferring 47,000 taxpayer addresses to ICE via a secure dropbox system.
This confirmed the pipeline was active and taxpayer data was being shared in bulk for immigration enforcement.
Legal Challenges
Implementation of the agreement immediately triggered lawsuits and warnings from economists about far-reaching consequences. As of late 2025, the battle over the MOU’s legality continues in courtrooms across the country.
The Main Case
Almost immediately after the MOU was signed, a coalition of immigrant advocacy groups, civil rights organizations, and labor unions filed lawsuits to block implementation. The central legal challenge is Centro de Trabajadores Unidos v. Bessent.
The plaintiffs’ legal arguments attack the MOU on several fronts:
Violation of Section 6103
They argue the agreement violates both the spirit and letter of the tax code’s confidentiality protections, which were intended to be a strong shield against this type of data sharing.
The Pretext Argument
The plaintiffs contend the government’s reliance on the crime of “failure to depart” is a legal fiction—which they characterize as a pretext to create the appearance of a criminal investigation to access tax data for what is fundamentally mass civil immigration enforcement.
They point to the sheer scale of ICE’s data request—for over one million people—as evidence that it’s implausible the agency is conducting that many genuine criminal investigations simultaneously.
Arbitrary and Capricious
They argue the policy is “arbitrary and capricious” under the Administrative Procedure Act because it represents a sudden reversal of decades of established IRS policy without a reasoned explanation.
The government’s defense rests on a “plain-language” interpretation of the statute. Its lawyers argue that as long as ICE follows the procedural steps in Section 6103(i)(2)—submitting a written request that names a criminal statute—the IRS is legally permitted to disclose the information, regardless of past practices.
Court Decisions
The legal battle has seen mixed initial results. In May 2025, a federal district court judge denied the plaintiffs’ motion for a preliminary injunction, finding that based on the statute’s clear text, they were unlikely to ultimately win.
The plaintiffs immediately appealed to the U.S. Court of Appeals for the D.C. Circuit, with oral arguments scheduled for October 2025.
In a separate case, another federal judge ordered the IRS to release its internal administrative record related to the agreement, including emails about ICE’s data request, and required the government to provide 24-hour notice of any new requests for taxpayer data from DHS or ICE.
Economic Impact
Economists and policy analysts have warned of severe negative consequences. The primary concern is a chilling effect on tax compliance.
Immigrant communities have reported widespread fear and confusion following news of the MOU, leading many to question whether it’s still safe to file taxes.
This erosion of trust threatens massive impact on the U.S. Treasury. Analysts at the Tax Policy Center and the Institute on Taxation and Economic Policy project that a significant drop in filing rates among undocumented immigrants could cost the federal government billions annually.
One analysis estimated that a 10-percentage-point decline in compliance from this group would reduce federal revenue by $8.6 billion per year. A broader projection from the Yale Budget Lab suggested the total revenue loss over the next decade could be between $147 billion and $479 billion.
This creates a policy paradox: in an effort to enforce one set of laws, the government may be undermining compliance with another, at great cost to the nation’s finances.
Since proof of tax payment is a common requirement in most legislative proposals for immigration reform, the policy could jeopardize the ability of long-term, otherwise law-abiding residents to earn legal status in the future.
The Risk of Errors
Privacy experts have raised alarms about the technical dangers of the data-sharing plan. The IRS and ICE databases were never designed to work together, and attempts to match millions of records will inevitably result in “record linkage errors.”
Names can be misspelled. Addresses can be outdated. People can be easily confused.
This messy data creates high risk of mistaken identity, which could have devastating consequences. U.S. citizens and legal permanent residents who share a name with an immigration target, or whose data is incorrectly linked, could find themselves subject to wrongful enforcement actions.
The policy poses a threat not only to the undocumented community but to any American who could be swept up by an administrative error in a supercharged enforcement system.
Legitimate Criminal Collaboration
To fully understand the controversy, it’s important to distinguish the 2025 MOU from legitimate ongoing collaboration between IRS-CI and ICE. Opposition to the data-sharing agreement isn’t opposition to inter-agency cooperation generally, but to a specific application that broke with decades of legal precedent.
Following the Money
IRS-CI and ICE HSI are natural partners in fighting complex international financial crime. Both agencies investigate money laundering, fraud, and the financial underpinnings of transnational criminal organizations.
IRS-CI brings expertise in tax law and financial analysis. HSI contributes broad authority over customs and immigration violations and an extensive global footprint.
This synergy is formalized through participation in multi-agency task forces, such as the Organized Crime Drug Enforcement Task Forces, where agents work together to dismantle major drug trafficking and money laundering networks.
Examples of Proper Collaboration
Press releases from the Departments of Justice and Homeland Security regularly highlight successful joint investigations:
Venezuelan Bribery and Money Laundering
A joint investigation by HSI Miami and IRS-CI Miami resulted in civil forfeiture of over $20 million in proceeds from a massive foreign bribery scheme. The case involved a Venezuelan national who paid tens of millions in bribes to secure government food contracts and laundered hundreds of millions of dollars through the U.S. financial system.
Securities and Tax Fraud
A joint HSI and IRS investigation in San Diego led to imprisonment of a businessman who orchestrated a complex international scheme involving securities fraud, operating an unlicensed money transmitting business to launder proceeds from Hong Kong and the Bahamas, and tax fraud. The case required both HSI’s expertise in cross-border financial flows and IRS-CI’s ability to unravel the tax evasion component.
The Critical Distinction
These cases represent a stark contrast to the 2025 MOU. The legitimate joint investigations are targeted, evidence-based operations focused on specific predicate criminal acts. They’re the work of what advocates describe as a scalpel, carefully dissecting complex criminal conspiracies.
The MOU facilitates the work of what advocates describe as a sledgehammer. It enables bulk transfer of data on over a million people, not based on evidence of a specific crime they committed, but on their civil immigration status.
This distinction is critical. The long-standing partnership between HSI and IRS-CI demonstrates that federal law enforcement agencies can and should cooperate to combat serious crime. The firestorm ignited by the 2025 MOU demonstrates that this cooperation has clear legal and ethical boundaries, and that crossing them in ways that violate privacy norms and undermine public trust carries profound risks.
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