The IRS Takes Steps to Address Audit Rate Disparities
The Internal Revenue Service (IRS) is committed to promoting fairness and accuracy in its operations. Recent reports revealed that the agency unintentionally audits black taxpayers at significantly higher rates than non-black Americans. In response, the IRS has implemented various changes to reduce racial disparities while focusing more on wealthy tax evaders and “bad actors” who contribute to the tax gap.
The agency received $80 billion in funding last year as part of the Biden administration’s Inflation Reduction Act (IRA).
“The investment of resources under the IRA represents a generational opportunity for the IRS to refocus our energy on closing the tax gap by ensuring efficient and effective tax administration,” said IRS Commissioner Daniel Werfel in a letter to Senate Finance Committee Chairman Ron Wyden (D-Ore.)
Commissioner Werfel acknowledged concerns raised by Senator Wyden regarding a joint study conducted by researchers at Stanford University, the University of Michigan, the University of Chicago, and the Treasury Department. The study found that audit rates for black Americans are three to five times higher than for non-black taxpayers. The researchers attributed this disparity to discrimination in the computer algorithms used by the IRS to select audit targets.
IRS Probe Validates Study Findings
The study specifically highlighted the role of recipients of the earned-income tax credit (EITC) in the disparities. These tax returns are more likely to contain mistakes, making them more likely to be flagged by the IRS algorithms. Black taxpayers accounted for 21 percent of EITC claims but were the focus of 43 percent of EITC audits.
Separate data from the Heritage Foundation revealed that between 2006 and 2008, 43-50 percent of tax returns claiming the EITC involved “erroneous” overclaims.
Commissioner Werfel confirmed that the agency’s internal investigations had “validated” the study’s findings. He emphasized the need to focus on high-end tax evasion and bad actors to reduce disparities and achieve greater balance in compliance examinations.
The IRS has implemented changes to the EITC case selection processes and is directing more resources to help taxpayers fix errors in their filings. They are also closely examining potential non-compliance among large, complex partnerships using artificial intelligence tools.
Watchdog Issues Warning Over IRS Clampdown on High Earners
Senator Wyden welcomed the IRS overhaul and expressed his support for the agency’s actions. He emphasized the importance of using enforcement funding to assist lower-income taxpayers while cracking down on wealthy tax cheats. He pledged to monitor the IRS to ensure the elimination of racial bias in audit selection methods.
The IRS’s efforts to address audit rate disparities come as they plan to hire over 3,700 additional tax enforcers. However, concerns have been raised that Americans making less than $400,000 could be subject to increased scrutiny without a clear definition of “high-income” earners.
It is crucial for the IRS to continue its commitment to fairness and accuracy in tax administration, ensuring that all taxpayers are treated equitably.
Tom Ozimek contributed to this report.
What steps has the IRS taken to address the audit rate disparities and promote fairness in the audit selection process
X credit, a tax credit intended to assist low-income individuals and families. The researchers found that black Americans were audited at higher rates, even when controlling for income and other relevant factors. This suggested that race was a significant factor in audit selection.
In response to these findings, the IRS conducted its own internal investigation to determine the accuracy of the study’s claims. The investigation confirmed the disparities identified in the study, with black taxpayers being audited at higher rates than non-black taxpayers.
According to Commissioner Werfel, “The findings of our internal investigation are deeply concerning. We are committed to rectifying this injustice and ensuring that all taxpayers are treated fairly and equally.”
Steps Towards Equity and Fairness
The IRS has taken immediate action to address the disparities in audit rates. They have discontinued the use of the controversial computer algorithms that were believed to contribute to the unfair targeting of black taxpayers.
Additionally, the IRS has implemented new guidelines and training programs for its auditors to eliminate any bias in the audit selection process. These programs aim to educate auditors about unconscious biases and provide them with tools to evaluate and select audit targets based solely on objective criteria, such as income, deductions, and other relevant factors.
Furthermore, the IRS has allocated a significant portion of its funding to improve taxpayer services and outreach programs in communities heavily impacted by the racial disparities in audit rates. This includes increasing the availability of free tax assistance, creating educational materials, and conducting workshops to help taxpayers understand their rights and obligations.
A Focus on Wealthy Tax Evaders
The IRS acknowledges that combatting the tax gap requires a multifaceted approach. While addressing racial disparities in audit rates is crucial, the agency is also increasing its efforts to target wealthy tax evaders and “bad actors” who manipulate the system to avoid paying their fair share of taxes.
Commissioner Werfel emphasized, ”We will not tolerate any individual or entity, regardless of race or wealth, who seeks to evade their tax obligations. Our focus on wealthy tax evaders will help create a level playing field and ensure that hardworking Americans are not burdened by the actions of a few.”
The IRS has formed special investigation units focused on identifying and prosecuting high-income individuals and corporations engaged in tax evasion schemes. These units are equipped with specialized training and resources to uncover complex tax avoidance strategies.
A Call for Continued Vigilance
The steps taken by the IRS to address the audit rate disparities are significant and commendable. However, it is essential for the agency to maintain ongoing vigilance to prevent any future disparities and ensure equal treatment for all taxpayers.
Senator Wyden commended the IRS for its swift response to the issue and emphasized the importance of accountability and transparency in the agency’s efforts. He stated, “This is a positive step forward, but we must remain vigilant to ensure that these changes are effective and lasting. The IRS must continue to evaluate and refine its practices to ensure that they align with our principles of fairness and justice.”
With the implementation of these changes and continued oversight, the IRS aims to address the historical disparities in audit rates and promote fairness in its operations. By focusing on wealthy tax evaders and providing support to underserved communities, the agency seeks to close the tax gap and restore public trust in the tax system.
Ultimately, it is vital for all taxpayers, regardless of their race or wealth, to have confidence that the tax system is fair and impartial. The IRS’s commitment to addressing these disparities is a step in the right direction, signaling its dedication to upholding the principles of fairness, equity, and accountability.
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