Privacy Vs. Policing: Treasury's Tax Information Sharing Deal

Forbes

01-07-2025

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In this episode of Tax Notes Talk , Tax Notes investigations editor Lauren Loricchio discusses Treasury's information sharing agreement with the Department of Homeland Security and its implications for immigrants.
Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity.
David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International . This week: data sharing.
As we've covered extensively, the IRS has been under a continual spotlight since the beginning of the Trump administration. From funding rollbacks to staff reductions, concerns have mounted over the agency's future. And now, Treasury's decision to share taxpayer information with the Department of Homeland Security has led to increased uncertainty over the privacy of tax data.
So what are the risks of this agreement, and how are those affected responding? Here to talk more about this is Tax Notes investigations editor Lauren Loricchio. Lauren, welcome back to the podcast.
Lauren Loricchio: Great to be back.
David D. Stewart: As I mentioned in the opening, Treasury entered into an information sharing agreement with the Department of Homeland Security. Could you tell us about that?
Lauren Loricchio: They did. Treasury Secretary Scott Bessent signed a memorandum of understanding April 7, which established a mechanism for the IRS to share information with the Department of Homeland Security under Internal Revenue Code section 6103(i)(2). That code provision allows the IRS to share limited tax return information with other agencies if the information will help with criminal enforcement.
This agreement first became a concern when The Washington Post reported in March that the IRS was getting close to reaching a deal with DHS and that IRS officials were worried it would run afoul of privacy protections in the Internal Revenue Code. We can now see some of the terms of the agreement after the MOU was revealed in court documents.
David D. Stewart: What types of taxpayers are being affected by this agreement?
Lauren Loricchio: The attorneys that I've spoken to say it is a particular concern for undocumented immigrants, who typically file their taxes using an individual taxpayer identification number, also known as an ITIN. The program allows people without a Social Security number to comply with their tax filing obligations, so many undocumented immigrants file their taxes this way. Not everyone who uses an ITIN to file their taxes is undocumented. To apply for an ITIN, taxpayers submit a form W-7, which asks for their mailing and foreign address, country of citizenship, type of U.S. visa, and date of entry into the United States.
David D. Stewart: So what are the concerns about this information sharing agreement and the overall environment where it was entered into?
Lauren Loricchio: Sure. Tax return information is protected from disclosure under Internal Revenue Code section 6103. The IRS has historically encouraged undocumented immigrants to file their taxes, saying it doesn't share their personal information with other agencies, like the Department of Homeland Security. While there was some worry about the safety of this data, tax professionals could say with relative certainty that undocumented immigrants should feel safe filing their taxes with the IRS.
But now with this information sharing agreement in place, tax professionals say the advice they're giving clients has changed because the information their clients provide to the IRS, including their address, could potentially be used against them.
Some of the tax professionals I've spoken to are worried this information sharing agreement will deter immigrants from filing their taxes, which can in turn have a negative impact on revenue collection. The Institute on Taxation and Economic Policy released a report last year, which found that undocumented immigrants paid nearly $100 billion in federal, state, and local taxes in 2022.
David D. Stewart: So what led you down this path to look into this issue?
Lauren Loricchio: When news of the information sharing agreement broke, I heard concerns from tax professionals that this data sharing agreement might deter immigrants from filing their taxes. So I wanted to learn more about the impact on tax filing this year, and I spoke with undocumented immigrants to find out how the situation was affecting them.
David D. Stewart: And what sort of things did you learn?
Lauren Loricchio: The stories I heard were different, but they all had something in common: Each person I spoke with said they wanted to comply with their tax filing obligations and follow the law, but they were scared that their information could be used against them.
One person I spoke with, who's originally from Brazil and goes by the nickname Rob, said he normally files his taxes each year with an ITIN, but he didn't file this year because he was afraid that he would be deported.
I spoke with a factory worker who fled Colombia to escape threats from a crime group. He said he paid his taxes this year despite the potential consequences. He fears for his life if he returns to Colombia, but he wanted to follow the law.
Another woman I spoke with who is originally from Guatemala and is self-employed said she filed for an extension this year; she has an eight-year-old daughter who is a U.S. citizen, and she's afraid that she could be separated from her.
David D. Stewart: I understand that there is some litigation over this. Could you tell us about that and where it stands?
Lauren Loricchio: Back in March, two immigrant rights advocacy groups filed litigation to challenge the disclosure of immigrant taxpayer data. The complaint argues that section 6103 forbids the IRS and Treasury from sharing tax returns or tax return information for purposes of immigration enforcement.
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Nina Olson, the executive director of the Center for Taxpayer Rights and a former national taxpayer advocate, submitted an affidavit in support of the plaintiffs. She's a member of Tax Analysts' board of directors, and Tax Notes also funds a joint transparency project with the Center for Taxpayer Rights.
She argues that the MOU is flawed because it says the information sharing agreement is permissible under section 6103(i)(2), which permits the disclosure of tax return information in support of an investigation or preparation for judicial proceedings to help with criminal investigations, and the MOU says the information sharing is to facilitate civil immigration enforcement.
But the judge in that case sided with the federal government, writing that the plaintiffs' reading of section 6103(i)(2) doesn't comport with the text of the statute, and she denied a request from plaintiffs to block Treasury from disclosing taxpayer information for immigration enforcement. The case isn't over yet; the plaintiffs filed a notice of appeal on May 21 with the D.C. circuit.
David D. Stewart: So what are some of the other concerns you're hearing about this in your reporting?
Lauren Loricchio: I spoke with Danny Werfel, who recently stepped down as IRS commissioner, and he said if the IRS begins sharing tax data without first seeking explicit statutory authority from Congress, it could have a broader impact.
Werfel said, because the U.S. tax system is based on voluntary compliance, it doesn't take a large amount of noncompliance to make a big impact on tax receipts. If this expansion of IRS authority affects voluntary compliance even by 1 percent, it could lead to tens of billions of dollars in lost revenue, he said. Another issue raised by Nina Olson is that IRS employees could be subject to penalties for disclosing or inspecting information in violation of section 6103.
David D. Stewart: Does this policy raise other tax administration concerns?
Lauren Loricchio: Yeah, I think the concern is that it could deter immigrants from filing their taxes, and part of that is that a lot of people are living in mixed-status households. So some people might have a relative who is undocumented, and they might be afraid to file their taxes because they're afraid that someone in their household could be deported.
David D. Stewart: So since you are primarily interested in our investigative side here at Tax Notes , is there a way that listeners could reach out to you with more information that they may have?
Lauren Loricchio: Yeah, we're watching this issue closely. If you have tips or want to speak with us, you can reach us via email at [e-mail], or you can reach our reporters securely via the Signal app at taxnotesnews.08.
David D. Stewart: Well, Lauren, thank you so much for being here. This has been an interesting conversation.
Lauren Loricchio: Thank you for having me.