Is The IRS Tax Algorithm Targeting Low-Income Blacks?

By CultureBanx Team

  • Black Americans are 3-5 times more likely to be audited by the IRS
  • Black men with dependents who claim the Earned Income Tax Credit are nearly 20 times as likely to be audited

Black taxpayers receive IRS audit notices at least 2.9 times (and perhaps as much as 4.7 times) more often than non-Black taxpayers, even after accounting for the differences in the types of returns each group is most likely to file. The disparity, though unlikely intentional on the part of the IRS, leads to a disproportionate number of low-income Black Americans being targeted. 

Why This Matters: There are long-standing questions about whether the IRS uses its audit powers equitably.  However, the private nature of tax returns and the confidentiality of the IRS’s approach to audit decisions made the process difficult to decipher, until now.  A team of economists from Stanford and the U.S. Treasury Department recently conducted one of the most detailed studies yet on race and the nation’s tax system.  According to their findings, the racial disparity in audit selection is driven by a set of internal IRS algorithms. 

Specifically, the team found that the IRS computer algorithms not only result in more Black Americans being audited, but also disproportionately target people who claim the Earned Income Tax Credit (EITC). The EITC is a program that assists low- to moderate-income workers. Black taxpayers accounted for 21% of EITC claims, but were the focus of 43% of EITC audits.  Racial disparity in audit rates is most extreme for single Black men with dependents who claim the EITC.  They are nearly 20 times as likely to be audited as a non-Black jointly filing (married) taxpayer claiming the EITC.

What’s Next: The bulk of the observed racial disparity involved so-called “correspondence” audits done by mail rather than more complex, in-person “field” audits. Seventy percent of IRS audits happen through the mail and 50% involve EITC claimants. When compared with labor-intensive field audits, correspondence audits of EITC claimants are easy to trigger, cost very little, and require minimal effort by IRS personnel.  

Bottom line, the IRS has focused its efforts on audits that are easier to conduct. As a result, disproportionately audited those who are historically disadvantaged instead of focusing on other taxpayers, including high net-work individuals who are likely to underreport larger sums. Last fall, the Treasury Department started an advisory committee to help it focus on disparities faced by Americans of color. Get ready to file your taxes by April 18th.

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