IRS Admits Black Taxpayers Are More Likely To Face Audits

On Monday, the IRS released the findings of an internal investigation that found Black taxpayers are audited at higher rates than expected, given their share of the U.S. population. 

Earlier this year, researchers reported that Black Americans are five times more likely to have their federal tax returns audited than taxpayers of other races, CBS News reported. This finding prompted lawmakers and policy experts to call on the agency to review its auditing processes.

An earlier analysis discovered that low-income Americans are also five times as likely to get audited than any other income class, primarily because of the Earned Income Tax Credit (EITC).

“[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,” IRS Commissioner Daniel Werfel wrote Monday letter addressed to the U.S. Senate.

The IRS received $80 billion in funding through the Inflation Reduction Act. It says it plans to use a portion of that money to “understand any potential systemic bias in compliance strategies and treatments,” Werfel noted.

Some lawmakers called for change following Werfel’s admission that Black Americans are more likely to be audited by the IRS. 

“Back in March, my colleagues and I raised alarms to the new IRS boss about Black taxpayers being over-audited, and today he confirmed our suspicions,” wrote Rep. Bill Pascrell, Jr., a Democrat from New Jersey, on Twitter. “The IRS is making strides, but extra audits of Black Americans is disgraceful and must end.”

The agency says it will evaluate its processes to uncover the source of racial disparities, with Werfel adding that it is also considering changing how it chooses which tax returns to audit.

Evidently, the IRS doesn’t track the race of filers. However, the study conducted earlier this year claimed the higher audit rate for Black taxpayers results from a flawed artificial intelligence algorithm used by the IRS to decide who gets audited.

It’s possible the IRS could change its process to focus on “broader tax issues” instead of the EITC, Werfel added. As many as half of tax returns claiming the EITC inadvertently claimed too much, while others sometimes incorrectly claim the credit although they aren’t eligible, the Conservative Heritage Foundation stated.

“We will work to identify any disparities across dimensions including age, gender, geography, race, and ethnicity, as well as continually refining our approaches to compliance and enforcement to improve fairness in tax administration and maintain accountability to taxpayers as informed by our research,” Werfel noted in the letter.