Black taxpayers more than three times more likely to be audited by IRS

A new report published Monday found that the IRS audits Black taxpayers at a significantly higher rate than non-Black taxpayers.

The paper, published by Stanford’s Institute for Economic Policy Research, said that despite the IRS’s “race-blind audit selection,” Black taxpayers are audited 2.9 to 4.7 times more often than non-Black taxpayers. However, the research did not suggest that the disparity is a result of one group of people evading taxes more than another but rather that it may be a result of the computer algorithms the IRS uses for selection.

“Using counterfactual audit selection models, we find that maximizing the detection of underreported taxes would not lead to Black taxpayers being audited at higher rates,” the paper reads.

The study found that the largest disparity between the groups was among those claiming the earned income tax credit (EITC), which helps low- to moderate-income workers and families get a tax break, according to the IRS.

“Even when such algorithms are formally neutral with respect to protected characteristics like race, there is widespread concern that they can disproportionately burden vulnerable groups,” the economists wrote.

Rep. Richard Neal (D-Mass.), ranking member of the House Ways and Means Committee, said it is time for the committee’s Racial Equity Initiative to address “discrimination at the IRS.” Neal launched the Racial Equity Initiative in 2021 to address discrimination in healthcare and economic settings. 

“For years, Ways and Means Democrats have raised alarms over audit rate disparities between low-income and wealthy taxpayers, and today’s findings confirm that stark racial disparities exist as well,” he said in a statement responding to the news on Tuesday. “This is unacceptable, but a consequence of algorithmic tools that exacerbate racial biases in our institutions.”

The research said that one of the reasons the disparity exists is that it is “more complicated” to audit those who also report their business income and thus correlates with an increase of audits focused on one demographic over another.

Black taxpayers make up 21 percent of nonbusiness EITC returns, compared to 11 percent of business EITC returns, which could help explain why these taxpayers are audited more often than other groups, the report estimated.

Another reason for the disparity may be that the algorithm prioritizes the overclaiming of refundable credits, which may be more prominent in one group over another.

A Treasury spokesperson responded to the study claiming that “equitable enforcement of our tax laws is a top priority for the Administration.”

“Resources provided by the Inflation Reduction Act will enable the IRS to upgrade technology and hire top talent to go after wealthy tax evaders,” the spokesperson added.