Trump admin suffers back-to-back legal blows as federal appeals court blocks IRS program used to share taxpayer information with ICE

A federal appeals court delivered the Trump administration a second major legal setback in less than two weeks, ruling that the Internal Revenue Service (IRS) likely broke federal law by sharing taxpayer addresses with Immigration and Customs Enforcement (ICE) as part of the administration’s deportation push.

The U.S. Court of Appeals for the District of Columbia Circuit unanimously upheld a lower-court injunction blocking the IRS’s “Data-Exchange Procedure,” which had already turned over more than 47,000 taxpayer records to immigration authorities.

The three-judge panel — Circuit Judges Cornelia Pillard, Patricia Millett and Robert L. Wilkins, all appointed by former President Barack Obama — found that challengers were likely to prove the program violated Section 6103 of the Internal Revenue Code, the post-Watergate statute restricting when the IRS can disclose tax return information to other federal agencies.

Court details how the program fell short of the law

Writing for the panel in a 32-page opinion, Pillard traced Section 6103 to abuses uncovered after Watergate, when congressional investigators found taxpayer information had been used to target political opponents. Lawmakers responded by restricting the IRS from sharing tax return information unless the requesting agency meets “stringent conditions” under the statute.

The court found that ICE’s request for the last known addresses of roughly 1.28 million people went far beyond what Section 6103 permits.

Judges cited evidence that the IRS processed requests even when ICE’s address fields contained placeholders such as “Unknown Address,” “Failed to Provide” or “NA NA,” despite the requirement that agencies provide a taxpayer’s name and address before obtaining return information.

The panel also found that more than 90 percent of the disclosures resulted from taxpayer-identification-number matching that did not confirm ICE had supplied a valid address. The system required only five or nine digits to appear in the address field, without requiring those digits to form an actual ZIP code.

The panel rejected the government’s argument that a single ICE officer could be “personally and directly engaged,” as required by the statute, in tens of thousands of separate criminal investigations.

Pillard also rejected the administration’s fallback argument that an officer could cross-check dates to verify each case, noting that the Data-Exchange Procedure did not record dates for the addresses it used.

The court further rejected the government’s claim that the procedure was an internal operational matter beyond judicial review. It ruled that the program qualified as reviewable “final agency action” under the Administrative Procedure Act.

Pillard wrote that the IRS was “now on notice twice over” about deficiencies in its 2025 disclosures and warned that the agency and its personnel face “steep civil and criminal consequences for willful disclosure of information in violation of section 6103.”

Reaction from the parties

The Center for Taxpayer Rights, which brought the lawsuit, said in a statement to Newsweek that the ruling upheld the “fundamental right to the confidentiality of taxpayer return information.”

The group added that the IRS and Treasury Department cannot “do end runs around carefully crafted statutory exceptions to confidentiality just because it wants to or thinks it knows better.” It said all U.S. taxpayers “should be relieved by the court’s order.”

A Department of Homeland Security spokesperson told Newsweek and Reuters that the agency “strongly disagrees” with the ruling and will “continue using every lawful tool available to locate and remove illegal aliens with final orders of removal.”

The spokesperson added that the decision “in no way prevents us from doing so.”

A second defeat tied to the midterms

The IRS ruling came six days after the same appeals court declined to pause a separate district court ruling against DHS’s expanded Systematic Alien Verification for Entitlements (SAVE) system.

The administration wanted states to use SAVE to check voter rolls for noncitizens ahead of the midterm elections.

DHS expanded SAVE after an executive order Trump signed in March 2025 titled “Preserving and Protecting the Integrity of American Elections.” The overhaul transformed the system from a tool that verified immigration status for benefits eligibility one record at a time into one capable of bulk searches using Social Security numbers and Social Security Administration records involving U.S.-born citizens.

U.S. District Judge Jia Cobb, presiding over League of Women Voters v. DHS, granted summary judgment to the challengers. She ruled that the SAVE overhaul violated the Privacy Act, the Social Security Act and the Administrative Procedure Act.

The D.C. Circuit declined to stay that ruling while the administration’s appeal proceeds. Solicitor General D. John Sauer responded by filing an emergency application with the U.S. Supreme Court arguing that the district court’s order “threatens the integrity of upcoming elections.”

The application will first go to Chief Justice John Roberts, who handles emergency applications from the D.C. Circuit and can refer them to the full court.

What comes next

Both disputes involve preliminary rulings rather than final judgments on the merits. However, the D.C. Circuit repeatedly indicated in the IRS case that the challengers are likely to prevail.

The Center for Taxpayer Rights said roughly 43,000 taxpayers whose information was found by both courts to have been unlawfully shared with ICE “must be notified so that they may seek damages against the government for this unlawful disclosure.”

The group said it will monitor whether the administration appeals the ruling or changes its procedures.

The SAVE dispute now awaits action from the Supreme Court. Its outcome could determine how much access state election officials have to federal citizenship-verification tools before voters cast ballots in November.