Black taxpayers are 3 to 5 times more likely to be audited by the IRS

A happy, smiling man and woman senior African American couple eating healthy food at a picnic table outside

IRS Commissioner Daniel Werfel has sent a letter to the Senate Finance Committee, acknowledging research findings that indicate Black taxpayers are disproportionately targeted for audits. In his letter, Werfel stated that the Internal Revenue Service (IRS) will be dedicating significant resources to investigating the reasons behind this disparity.

The acknowledgment by the IRS follows earlier research conducted this year, which revealed that Black Americans are up to five times more likely to undergo federal tax return audits compared to taxpayers from other racial backgrounds. This concerning information prompted lawmakers and policy experts to call for a review of the IRS auditing processes.

Werfel’s letter stated, “[O]ur initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population.”

He further mentioned that the IRS plans to utilize some of the $80 billion funding received through the Inflation Reduction Act to better understand potential systemic biases in compliance strategies and treatments.

Following the IRS Commissioner’s admission of the disproportionate audit rates for Black Americans, several lawmakers have called for changes to address this issue.

Representative Bill Pascrell, Jr., a Democrat from New Jersey, expressed his concern.

“Earlier this year, Ways and Means Democrats underscored the importance of closing racial disparities in IRS audit rates and ensuring that all American taxpayers receive fair treatment,” said Pascrell. “Today, Commissioner Werfel publicly confirmed that audit rates are disproportionate.”

“He has committed the IRS to addressing the biased methodology used in the audit program and implementing changes to fix this issue by the next tax filing season,” said Pascrell. “Ways and Means Democrats will not rest in our quest to build a tax system that works fairly for all Americans and we will continue our rigorous oversight of the IRS to end these disparities.”

To determine the source of racial disparities, the IRS will evaluate its processes, including how it selects tax returns for audits.

Although the IRS does not track the race of filers, the earlier research study suggested that a flawed artificial intelligence algorithm utilized by the IRS to make auditing decisions may be responsible for the higher audit rate among Black taxpayers.

Werfel mentioned the possibility of shifting the focus of the IRS auditing process to “broader tax issues” rather than primarily targeting the Earned Income Tax Credit (EITC). The EITC, aimed at low-wage workers, has a higher rate of erroneous claims and often leads to audits for low-income Americans.

The conservative Heritage Foundation estimates that nearly half of the tax returns claiming the EITC contain overclaimed amounts or are filed by individuals who are ineligible for the credit.

In his letter, Werfel emphasized the IRS’s commitment to identifying disparities across various dimensions, such as age, gender, geography, race, and ethnicity. The agency aims to continually refine compliance and enforcement approaches to enhance fairness in tax administration, maintain accountability to taxpayers, and incorporate research findings.

The IRS’s decision to address the audit disparities faced by Black taxpayers is seen as a positive step toward rectifying the systemic biases within the tax system.

The dedicated resources and commitment from the IRS to investigate and improve auditing practices could lead to a fairer tax administration process that upholds the principles of equality and accountability.

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