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Black taxpayers are more likely to face IRS scrutiny

IRS Commissioner Danny Werfel speaks at a Senate Finance Committee hearing in Washington, D.C. on April 19, 2023.

Drago | bloomberg | Getty Images

The IRS said Monday that black taxpayers are significantly more likely to be audited by the IRS, confirming the latest findings. said IRS Commissioner Daniel Werfel The agency is considering changes to address the disparity.

A study released in January by economists at Stanford University, the University of Michigan, the US Treasury and the University of Chicago found that the IRS audits black taxpayers three to five times more often than other Americans. The researchers based their assessment on microdata from nearly 148 million tax returns and 780,000 audits.

These findings raised questions from lawmakers during Werfel’s nomination process.

“While more research is needed, our preliminary findings support the conclusion that black taxpayers may be subject to auditing at higher rates than would be expected given their share of the population,” Werfel wrote in a May 15 letter to the Senate Finance Committee. .

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Werfel said the IRS has committed “significant resources” to addressing the disparity, including a close look at the agency’s automated processes and the data used in exam selection.

Specifically, he pledged to examine algorithms for audits of filers claiming the Earned Income Tax Credit, or EITC, a tax credit for low-to-moderate-income workers. The EITC is under close scrutiny because it is refundable, which means it still offers a refund even when the value of the credit exceeds the taxes owed. Werfel stressed that the IRS does not and will not consider race as part of the audit selection process, but the original research indicates that the EITC may have contributed to this disparity.

Werfel added, “I will remain focused on this to make sure we identify and implement changes before the next tax filing season.”

Ron Wyden, chairman of the Senate Finance Committee, said the findings are a “shameful consequence” of the racial discrimination that often shows up in the algorithms of government and private institutions. “This bias is totally unacceptable no matter where it occurs, and we have an obligation to eradicate it,” he said in a statement Monday.

Wyden said the past decade of IRS budget cuts have made it “almost impossible to enforce tax laws fairly,” leading to “an over-reliance on these flawed algorithms.”

Last August, Congress authorized nearly $80 billion in funding for the IRS, intended to close the tax gap by initially focusing on the tax returns of wealthy families, large corporations and complex partnerships.



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