IRS plan to give data to ICE could wallop California, where many immigrants pay taxes

One after another in recent weeks, Maria’s accounting clients raised the same fear: immigration agents finding and detaining them using information from their tax filings.

“I heard it from everybody,” said the 40-year-old consultant for undocumented small-business entrepreneurs in Southern California. “They come to me and they say, ‘Hey, should I do my taxes this year? Because they’re going to come find me.’”

Maria, who asked to be identified only by her first name for fear of being targeted by the Trump administration, said she understood well.

Maria has been in the U.S. for decades, has earned multiple degrees at California universities, has U.S. citizen children and has been applying for legal residency for years. But like many of her clients, she said, she lacks legal status.

Also like many of her clients, she has routinely paid U.S. taxes in the past using what’s known as an individual taxpayer identification number, or ITIN, in lieu of a Social Security number. The process seemed pretty straightforward, she said, until recently, when Trump administration officials announced that IRS data would be shared with ICE agents and used to target undocumented taxpayers for the first time.

Maria said she decided she would still pay her taxes, and advised clients who have paid in the past to do the same. After all, the IRS has most of their information already, she said, and paying this year would only show they are committed to doing the right thing.

Still, she felt betrayed, she said — as though the system for undocumented taxpayers was built on their trust, but constructed of lies.

“They’re trying to criminalize us,” Maria said. “They’re trying to make it that we did it wrong, but really the government did it wrong.”

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Such frustrations have spread rapidly in recent weeks as the Trump administration’s data-sharing plan has come into focus, particularly in California — which was home to about 1.8 million unauthorized people in 2022, accounting for about 7% of the state workforce and at least half of all farmworkers, according to the Pew Research Center and UC Merced research.

The Trump administration has defended the scheme as a legal tool that will only be used to investigate individuals who have committed crimes, but that has done little to alleviate the concern. Immigrant rights groups, including Los Angeles-based Inclusive Action for the City, which provides loans to undocumented entrepreneurs, said the fear is palpable — and part of the reason they sued to block the plan.

“We think it really is detrimental to our local economies, especially in Los Angeles, especially in California, but throughout the country,” said Rudy Espinoza, Inclusive Action’s executive director.

State leaders in Sacramento and Washington, D.C., are also speaking out against the deal, arguing it will undermine trust built with immigrant communities over decades and endanger billions in anticipated tax revenue from undocumented Californians. According to the Institute on Taxation and Economic Policy, such taxpayers contributed an estimated $8.5 billion in state and local taxes in California in 2022, more than in any other state.

“This agreement is a complete betrayal of the federal government’s decades-long commitment to never weaponize taxpayer information for political purposes. And this reversal of precedent will only create more fear within our immigrant communities and make it less likely for undocumented individuals to file their taxes, which could cost billions in lost tax revenue for states and the federal government,” Sen. Alex Padilla (D-Calif.) said.

He and other legislators have asked the Treasury Department’s inspector general for tax administration to investigate the deal’s legality.

Sen. Adam Schiff (D-Calif.) said such data-sharing would be illegal and constitutes “a total betrayal.”

“This lawless action will not make Americans any safer — and will only damage our economy,” Schiff said. He said “fear will be spread across immigrant communities” and “lasting damage will be done across sectors of our economy — leading to severe loses in tax revenue in the future.”

Gov. Gavin Newsom’s office declined to answer questions about the potential impact on state coffers, but expressed incredulity over the administration’s focus on undocumented taxpayers given its long-standing argument that many immigrants in the U.S. are a drain on American resources.

“Let me get this right — the Trump administration is finally admitting that undocumented people contribute to our economy and pay taxes?” said Diana Crofts-Pelayo, a Newsom spokesperson.

The IRS-ICE deal was first rumored, helping to spur the litigation, then made public in court, where the federal government disclosed an April 7 memorandum of understanding between Treasury Secretary Scott Bessent and Homeland Security Secretary Kristi Noem that outlined the sharing of taxpayer data for “nontax criminal enforcement.”

In the same case, the federal government has argued that the agreement comports with federal law, which it said “generally restricts the IRS from disclosing any tax return information” but provides for certain exceptions. It said the IRS is actually required to share information when properly requested as part of a criminal inquiry, and noted that there are certain immigration offenses that are criminal — including remaining in the country months after a final removal order, and reentering the country under certain conditions after being removed.

It said the IRS-ICE deal “establishes procedures and guardrails for ensuring that such requests and subsequent transfers of information are handled lawfully and securely,” and that the groups suing over it “have not pointed to any evidence that information will be misused” and lack standing to bring the challenge.

Espinoza, of Inclusive Action, disagreed. Small-business owners who are ITIN holders make up about a third of the group’s loan portfolio, which currently has about $2.1 million in outstanding loans, he said.

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“If the ITIN is no longer a credible, safe sort of vehicle to pay taxes, then we anticipate that many immigrant entrepreneurs are not going to want to contribute” to the formal economy by paying taxes, he said. “They’re going to be afraid to contribute to the economy, and they’re going to be afraid to seek out services from organizations like us.”

While many undocumented immigrants want to demonstrate that they are “part of this country” and “contribute formally” through taxes, “the administration is throwing that all out the window,” Espinoza said. And the impacts will be widespread, he said, affecting entire communities and many mixed-status families with U.S. citizen children.

Doug Smith, Inclusive Action’s vice president of policy and legal strategy, said the group’s clients are super engaged in their communities in part because they felt empowered by the fact that they “could get an ITIN, pay taxes, play by the rules, and that those actions would work in their favor and not be weaponized against them.”

But now, he said, there is “a very strong sense of betrayal and fear, which is causing this unfortunate and harmful retreat from the economy and also from civic space.”

In addition to the IRS deal, the Trump administration has also launched other immigration crackdowns, demanded everyone in the country illegally register with the government or be thrown in jail, and authorized ICE agents to target individuals in sensitive places where immigration enforcement has not occurred previously, such as courthouses, schools and churches.

State Sen. Maria Elena Durazo, a Los Angeles Democrat, said trust between state and local government and immigrant communities in California has taken “decades and decades” to build, and local officials are going to do everything they can to prevent the administration from undermining it.

As one part of that effort, Durazo recently introduced a bill that would bar California localities with street vendor programs from sharing vendors’ personal and taxpayer data with federal immigration officials unless they have a subpoena or judicial warrant, and from collecting other types of information from vendors, including fingerprints and immigration status.

“They want to pay taxes and they want to follow the rules. But if by doing that, their information is going to be shared with ICE, then it really undermines their trust,” Durazo said. “And we will then pay the consequences.”