An internal IRS investigation has confirmed that black taxpayers are audited at higher rates than other racial groups. A recent study at Stanford University found that black taxpayers were more likely to be singled out for audit than non-black taxpayers.
“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,” IRS Commissioner Daniel Werfel told lawmakers.
The main reason for the discrepancy surrounded the handling of audits involving a tax incentive known as the Earned Income Tax Credit, which provides credits to those at the lower end of the income spectrum that can total up to $7,430, depending on how many dependents they have.
The greater cause of the discrepancy is the selection of taxpayers targeted for auditing within the community of claimants: Black taxpayers who claim the EITC are reportedly between 2.9 and 4.4 times more likely to be audited by the IRS than their non-Black counterparts. Researchers found that audit rates between Black and non-Black taxpayers who do not claim the EITC show a smaller difference — although still statistically significant.
The IRS algorithm that chooses EITC tax returns for audit may be racially biased such as targeting incorrectly received credits and only choosing uncomplicated returns for audit.
“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.”
According to the letter, the IRS, which will receive nearly $80 billion in funding through the Inflation Reduction Act, says it plans to use some of the money to understand “any potential systemic bias” within its compliance strategies and treatments.
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