IRS acknowledges Blacks face more audit scrutiny

Agency pledges to work to make system more equitable.

The IRS said on Monday that Black taxpayers have been far more likely to be audited than others and that it is considering changes to its case selection process to address discrimination in how the tax code is enforced.

The acknowledgment came after the publication of research this year showing that Black taxpayers were disproportionately audited, prompting calls from members of Congress for a review into the methodology and algorithms that help determine who is selected. The tax collection agency, which got an $80 billion infusion in funding last year as part of the Inflation Reduction Act, has said it would work to make the system more equitable.

“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 Danny Werfel wrote in a letter to Sen. Ron Wyden, D-ore., the chair of the Senate Finance Committee.

Werfel said the IRS had dedicated “significant resources” to determine reasons for the disparity and evaluate the data that is available to the agency when deciding whom to audit and its automated processes. He suggested the IRS could consider basing audits on “broader tax issues” rather than focusing on people who might be improperly claiming earned-income tax credits.

The research found that Black taxpayers were three to five times more likely than taxpayers who are not Black to be audited. It noted that the IRS disproportionately flagged tax returns with potential errors in the claiming of certain credits, such as the earned-income tax credit, which supplements low-income workers’ incomes in an effort to alleviate poverty.

The IRS does not collect information about race as part of the tax-filing process, and Werfel did not say whether he believed that should change.

Sen. Elizabeth Warren, D-mass., said last month that the IRS should collect racial data in a way that lets the agency guard against bias.

Wyden said Monday that it was “shameful” that racial bias in algorithms used by the IRS had been guiding the audit selection process. He urged Werfel to correct that with the next filing system.

“You cannot have equality in society if algorithms and other automated systems that affect people’s lives treat them differently based on the color of their skin,” Wyden said.