Taxes

The IRS Admits Race Disparity In Their Audit Selection

For decades, the idea of being subjected to an Internal Revenue Service (IRS) audit has inspired fear in the minds of taxpayers. For Black Americans, that fear has escalated due to the disproportionate number of audits completed for the demographic. The recent cash infusion of $80 billion dollars to the IRS has lawmakers and taxpayers alike taking a renewed interest in how the agency uses its resources. This increased scrutiny has placed the IRS leadership in the hot seat while addressing the concerns around racial disparity among audited taxpayers. Legislator are demanding accountability, transparency and decisive action to ensure equitable treatment for all taxpayers.

Black taxpayers are much more likely to be audited by the IRS than any other group. The most recent study completed in January 2023 by Stanford University found audit rates could be as much as five times higher for black taxpayers than white taxpayers. The study found the main reason for the disparity to be the way audits are administered relating to a specific tax credit called the Earned Income Tax Credit (EITC). The EITC gives lower wage earners a tax credit that may result in significant tax refunds. For the first time in history, the IRS acknowledges the results of this study indicate a problem in their audit selection process, and the unintentional racial disparity it has created. Now, several democratic lawmakers are demanding swift action.

Admitting there is a problem is the first step

Black taxpayers have questioned the frequency of their audit selection for decades. In recent years, their concerns have been validated by statistical data. In 2019, former IRS Economist Kim Bloomquist found regional bias in IRS audit case selection, resulting in disproportionately targeting poor Black communities in the South. Their findings were supported in 2022 by a NYU Law Review article that found that “the IRS being race-blind has not resulted in racially neutral outcomes, and instead has exacerbated racial disparities in tax administration.” Now, in 2023, the Stanford study is spotlighting findings of racial disparity again. Their study compelled the IRS to acknowledge the need to examine their agency’s outcomes. “While there is a need for further research, our initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population,” Commissioner Werfel acknowledged in his letter to Senator Ron Wyden, Senate Finance Committee chair. This marks the first admission by the IRS of a problem with the audit disparity.

Lawmakers call for swift action to eliminate racial bias by the IRS

While acknowledging the issue is a key first step, the IRS has yet to disclose specifics on their next steps in addressing the situation. In response to pressure from lawmakers, Commissioner Werfel committed to deploy a portion of the new funding to address the problem. In his letter to Senator Wyden, he agrees to dedicate “significant resources to quickly evaluating the extent to which IRS’s exam priorities and automated processes, and the data available to the IRS for use in exam selection, contribute to this disparity.”

Lawmakers appear skeptical of the IRS’ commitment to address the presence of racial disparity in the audit selection process. The agency’s current data collection process does not capture information about race in their filing process. Commissioner Werfel says the agency has not yet identified if that practice should change despite the recent findings. This response is heavily criticized by lawmakers. “The racial discrimination that has plagued American society for centuries routinely shows up in algorithms that governments and private organizations put in place, even when those algorithms are intended to be race-neutral,” said Senator Wyden. He notes the higher frequency of audits for black taxpayers is a clear indicator that the current system is broken and calls the racial bias “completely unacceptable.”

Senator Elizabeth Warren of Massachusetts believes the IRS should begin to collect racial data in a way that allows the agency to guard against racial bias. “Clearly, race-blind tax data has not led to race-blind tax enforcement outcomes,” wrote Senator Warren in a letter to Commissioner Werfel. “The IRS should collect racial data in a way that protects taxpayers and allows the IRS to guard against racial bias.” Warren criticizes the IRS’ response to clear evidence of racial bias and questions their commitment to take immediate action. Commissioner Werfel’s letter notes the agency aims to “understand any potential systemic bias” within its compliance strategies and treatment, however Warren notes this provides no timely remedy for the black taxpayers affected by the admitted disparity.

Holding the IRS accountable

During testimony to the Senate Finance Committee in April 2023, Commissioner Werfel committed to provide a report within 60 days with more details on the agency’s plans for addressing audit disparity for black taxpayers. Lawmakers and taxpayers alike are eagerly anticipating this report and have committed to holding the IRS accountable to make meaningful changes that eliminate racial bias by the next tax filing season. The Senate Ways and Means committee released a statement noting, “[we] 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.”

Articles You May Like

Synapse bankruptcy trustee says $85 million of customer savings is missing in fintech meltdown
The tax deadline for American expats is June 17 — here are some key things to know
Got Questions About Medicare Hospice Services? Here Are Some Answers
Apollo’s co-president said it is one of the few private equity firms OK with higher rates
GameStop shares drop 19% after retailer posts 29% sales decline, reveals stock sale plan

Leave a Reply

Your email address will not be published. Required fields are marked *