AS A FORMER IRS AGENT, I KNOW THE TAX CODE LEADS TO DISCRIMINATION AGAINST COMMUNITIES OF COLOR
The Internal Revenue Service is understandably feared by most. But communities of color have greater cause to fear it. Unacknowledged implicit biases within the service are pervasive.
I'm a former I.R.S. agent — who is also White.
The federal tax code is itself structurally biased. But prejudices within the service also influence tax administration and audits. The Internal Revenue Service's decades-long efforts to raise consciousness and racial sensitivities have been no more successful than that of many police departments.
Indirectly, federal tax law discriminates with regressive tax brackets and loopholes that favor wealthier demographics over those of low-income taxpayers, disproportionately people of color. The 2017 Tax Cuts and Job Act exacerbated those inequities.
The federal tax code's injustices were directly caused by slavery.
In 1787, the U.S. Constitution, in a concession to slave-owning states, required each slave count as three-fifths of a free person for taxation and other reasons. A progressive income tax was deemed unconstitutional, so the federal government utilized a tax on wealth, proportional to a state's population. But populations of slave-holding states (although unfairly gaining political representation) were depressed by the threefifths rule, and wealth (including slaves) was taxed less. Instead, federal finances relied on regressive import tariffs. Thus, established wealth disparities have for the most part increased since our nation's founding.
Almost 250 years later, I saw firsthand, as a revenue agent, that Revolutionary-era injustices remained.
We “served” upper-class, affluent areas — as well as neighborhoods of color. The differences were stark.
Low-income areas and communities of color were disproportionately audited. Current figures show that taxpayers earning $25,000 per year or less are audited significantly more often than those in the $1 million to $5 million income bracket. Furthermore, wealthier residents retain tax professionals to find loopholes, negotiate more generous settlements and ensure clients' rights.
Auditing is inherently subjective, despite its spurious exactitude of calculating dollars and cents. It's simply determining the taxpayer's honesty. Each taxpayer is unique with different incomes and sources, deductions and differing degrees of personal integrity. Thus, the IRS audits the taxpayer, not the return; it's impossible to establish uniform and transparent procedures by which an auditor's personal judgment can be evaluated for fairness — or be observed by body-cams.
Biased auditing is often reinforced by a sense of shared beleaguerment. Agents tend to view themselves as the “thin blue line” of law and order, standing tall against the tax cheats threatening our government. “Nobody likes paying taxes” and “There's an awful lot of fraud out there” are the agency's mutually reinforcing mantras.
Tax law's extreme complexity allows indulging personal bigotries. Congress' two-volume tax code is transmogrified by the IRS' 10 volumes of regulations, court cases, revenue rulings and memoranda. Few understand them, which allows agents to freely exploit nearsuperstitious ignorance. Despite many being less knowledgeable than those they audit, IRS agents are deemed supreme authority, so their determinations rule.
Thus, implicit biases — not arcane tax law — often determine audits. Different ethnic groups may be viewed as more honest than others. Middle- and upperclass White Americans top the food chain, while people of color often face more intensive audits and their returns are found to have more problems, since they often can't hire tax pros to prepare their returns, or to represent them during audits.
Workshops are utilized to spread informal perspectives and auditing techniques, whether based on strict professional standards — or simple personal opinions. One such workshop focused on evaluating tax returns for fraud.
The district internal security manager opined that names indicate greater “audit potential.” Taxpayers with Korean-, Armenianor Filipino-sounding names were allegedly more likely to commit tax fraud, since they'd immigrated from corrupt countries where tax fraud was endemic; they likely retained those inclinations, according to the manager's theory.
Explicit but ill-defined “audit potential” rationalizes biases. It also explains disproportionately elevated audits of low-income taxpayers. They lack professional representation and are thus more easily intimidated. Significant adjustments are therefore possible, with minimal IRS resources. Small businesses are also targeted for similar reasons.
Congress recently began limited efforts to address the federal tax code's long-standing structural biases and to redress wealth and income disparities largely impacting minorities.
Sen. Sherrod Brown, D-Ohio, and others have proposed the Working Families Tax Relief Fund Act to assist families of color by increasing refundable tax credits for children, including those who don't live with their parents. If passed, the bill would significantly help over 16 million people of color.
Changing hearts and minds within the Internal Revenue Service is formidable. But Sen. Brown's proposed legislation, in conjunction with the pandemic relief bill and in contrast to 2017's tax cuts, is a significant step to ensure fairness in our tax system for all Americans.
The federal tax code is structurally biased. But prejudices within the service also influence tax administration and audits.