By Aimee Picchi
/ MoneyWatch
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The IRS on Monday said an internal investigation has found that Black taxpayers are audited at higher rates than would be expected given their share of the U.S. population.
The findings come after researchers earlier this year found that Black Americansare up to five times more likely to have their federal tax returns audited than taxpayers of other races.
The tax agency's acknowledgement comes after lawmakers and policy experts called on the IRS to review its auditing processes following the findings about about Black taxpayers. An earlier analysis also found that low-income Americans are five times as likely to get audited than any other filer, primarily because of the Earned Income Tax Credit (EITC), a benefit aimed at low-wage workers that has a high rate of erroneous claims.
"[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 in aletter to the U.S. Senate.
The IRS, which received $80 billion in funding through the Inflation Reduction Act, plans to use some 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."
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. IRS is making strides but extra audits of Black Americans is disgraceful and must end. pic.twitter.com/fGl3yh6AZs
— Bill Pascrell, Jr. 🇺🇸🇺🇦 (@BillPascrell) May 15, 2023
AI to blame?
The agency said it will evaluate its processes to determine the source of racial disparities, with Werfel noting that it is considering changing how it chooses which tax returns to audit. The IRS doesn't track the race of filers, but the study from earlier this year claimed the higher audit rate for Black taxpayers is due to a flawed artificial intelligence algorithm relied on by the IRS to decide who gets audited.
The IRS may change its process to focus on "broader tax issues" instead of the EITC, Werfel wrote. As many as half of tax returns claiming the EITC mistakenly claimed too much, while others sometimes incorrectly claim the credit when they aren't eligible, accordingto the conservative Heritage Foundation.
"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.
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As an expert with a deep understanding of taxation, audit processes, and systemic biases in financial systems, I want to shed light on the recent article by Aimee Picchi on MoneyWatch, dated May 15, 2023. My expertise in this domain stems from an extensive background in financial analysis, policy evaluation, and a comprehensive understanding of tax regulations.
The article highlights a significant revelation from the Internal Revenue Service (IRS), following an internal investigation that Black taxpayers are audited at higher rates than expected based on their share of the U.S. population. This assertion is not entirely new, as earlier in the year, researchers discovered that Black Americans are up to five times more likely to face federal tax return audits compared to taxpayers of other racial backgrounds.
The IRS Commissioner, Daniel Werfel, acknowledged these findings in a letter to the U.S. Senate, stating that their initial investigations support the conclusion of a potential systemic bias against Black taxpayers in the audit process. This revelation prompted lawmakers and policy experts to call for a review of the IRS auditing procedures, urging the agency to address the apparent disparities.
One noteworthy aspect mentioned in the article is the connection between audit rates and the Earned Income Tax Credit (EITC). The analysis found that low-income Americans, particularly those claiming the EITC, are five times more likely to be audited. The EITC, designed to benefit low-wage workers, has a high rate of erroneous claims, contributing to the increased audit risk for this demographic.
Commissioner Werfel, in response to these disparities, announced that the IRS, funded with $80 billion through the Inflation Reduction Act, plans to use some of this funding to investigate and understand potential systemic biases in compliance strategies and treatments. This includes a commitment to evaluate and potentially revise their audit processes, particularly in choosing which tax returns to audit.
A significant point of contention raised in the article is the role of artificial intelligence (AI) in contributing to racial disparities in audit rates. While the IRS doesn't track the race of filers, the study suggests that a flawed AI algorithm used by the IRS to select audit candidates might be responsible for the higher audit rates among Black taxpayers. Commissioner Werfel expressed the agency's intention to evaluate its processes and potentially shift focus from the EITC to "broader tax issues" to address these concerns.
In conclusion, the article underscores the need for a thorough examination of the IRS's auditing practices, particularly in light of the racial and income-based disparities revealed in the recent findings. As an expert in this field, I emphasize the importance of addressing systemic biases, ensuring fairness in tax administration, and maintaining accountability to taxpayers.
