Appeals court keeps block on IRS from sharing taxpayer data with ICE

A block on the IRS from sharing taxpayer data with Immigration and Customs Enforcement will continue after a federal appeals court upheld an order Tuesday prohibiting the tax agency from disclosing massive amounts of sensitive information to the Department of Homeland Security component. 

In considering a district court’s ruling in Center for Taxpayer Rights v. IRS that put the stay in place, the three-judge panel in the U.S. Court of Appeals for the D.C. Circuit took issue with several elements of the IRS-ICE pact, which it referred to in its ruling as the “Data-Exchange Procedure.”

The court ruled that the agreement “indisputably contravenes the requirements” laid out in federal tax code, specifically the section that guarantees privacy for taxpayer returns and information. The IRS processed ICE’s request for the addresses of nearly 1.3 million taxpayers, returning more than 47,000 matches to the DHS unit.

The IRS-ICE policy under the Trump administration automates the review of millions of records without individual reviews or other ways to ensure compliance, the court added, a “far cry” from how data-sharing between agencies is supposed to work and a “dramatic change in agency policy.”

The appeals court had little time for the administration’s complaints that the preliminary injunction that halted the data-sharing was “highly unusual and harmful,” calling that argument “weak sauce” given that the district court allowed the IRS to file notifications “under seal” so that any potential criminal investigative activity would be shielded from disclosure.

“Importantly, the district court’s advance notice requirement reasonably balances the government’s interest in making lawful disclosures with the plaintiffs’ interest in preventing unlawful disclosures that, if made, would likely be difficult or impossible to remedy,” the judges wrote.

The appeals court also shot down the Trump administration’s argument that the district court order would hinder law enforcement efforts, writing in the opinion that “that’s a gripe with Congress, not the court.” 

“As we have explained, the Data-Exchange Procedure is likely contrary to law,” the opinion said. “The government has no legitimate interest in conducting criminal investigations in violation of the statute.”

In closing, the court offered a warning to the Trump administration over the handling of the data-sharing agreement, pointing specifically to the IRS’s release of information last summer that revealed incomplete data requests from ICE that the tax agency fulfilled. Those requests violated the memorandum of understanding between the agencies and potentially federal privacy law. 

“The IRS is now on notice twice over regarding the legal inadequacies of its summer 2025 disclosures,” the court wrote. “The government and its personnel face steep civil and criminal consequences for willful disclosure of information in violation of section 6103.” 

Nina Olson, executive director of the Center for Taxpayer Rights, celebrated the ruling in a statement, calling the court’s order “a resounding victory for the protection of all taxpayers’ right to the confidentiality of their tax information in the hands of the IRS.”

“Congress has set strict parameters around the sharing of taxpayer information for a reason — that trust in the tax system depends on protection of taxpayer information,” she added. “By unlawfully sharing return information with ICE, the IRS violated that trust. The court’s order today is a step toward restoring it.”

Skye Perryman, president and CEO of Democracy Forward, which represents the Center for Taxpayer Rights and the other plaintiffs — Main Street Alliance, Communications Workers of America, and the National Federation of Federal Employees — said in a statement that the organization was “pleased the court has again acted to stop this unlawful behavior.”

“The privacy laws enacted in the post-Watergate era exist to prevent abuses of power just like this,” Perryman said. “The administration has already admitted to being careless and irresponsible with our sensitive, personal information, and now yet another court has held the administration in check.”