Stanford University Researchers Find Black Taxpayers 3-5 Times Likelier to Be Audited By the IRS

Black Taxpayers Most Likely to be Audited by IRS

Black taxpayers have a 2.9 to 4.7 times greater chance at being audited by the IRS despite the agency’s “race-blind audit selection.” Stanford University’s Institute for Economic Policy Research combed through IRS data and published a paper that found despite the disproportionally higher audit rates, the disparity is not the result of any single group evading taxes than another. They found that it’s likely the result of the IRS computer algorithms that select taxpayers to be audited.

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

According to The Hill, Rep. Richard Neal, a ranking Democrat on the House Ways and Means Committee said the study makes it clear that the committee’s Racial Equity Initiative should address “discrimination at the IRS.” The initiative was started by Neal in 2021 to address discrimination in healthcare and economic policy.

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“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 report.

A co-author of the study, Daniel E. Ho, is a law professor and a Senior Fellow at the Stanford Institute for Economic Policy Research. He told that while the paper doesn’t offer any advice to taxpayers it’s not without helpful information to the IRS, "We show that there is a lot the IRS can do to mitigate these disparities. Our evidence shows that treating adjustments from EITC the same as other forms of tax evasion and focusing on high dollar claims would make a big difference."

According to the research, Black taxpayers make up 21 percent of nonbusiness EITC returns as opposed to 11 percent of business EITC filings, which could help explain why they are audited more frequently than other taxpayer categories. The algorithm's preference for overclaiming refundable credits, which may be more common in one group than another, could also contribute to the imbalance.

Ho said that the Treasury and IRS are aware of the paper’s findings. Deputy Treasury Secretary Wally Adeyemo issued this statement in the fall explaining, “Historic challenges and underfunding have led to audit rates for those at the top of the distribution decreasing more than the correspondence audits of those at the bottom in the last decade, which should change.”

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