National
IRS chief acknowledges Black taxpayers face higher probability of being audited
Washington (CNN) — Internal Revenue Service Commissioner Daniel Werfel acknowledged in a letter to the US Senate on Monday that Black taxpayers are audited at significantly higher rates than non-Black taxpayers, a revelation he said has left the agency "deeply concerned." "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," Werfel said. The IRS was urged by lawmakers to look into the racial disparities after a January report by a Stanford research team initially revealed the findings. The research, a unique partnership with Department of Treasury, found that Black taxpayers are audited 2.9 to 4.7 times the rate of non-Black taxpayers – a difference that is highly influenced by Earned Income Tax Credit recipients. However, the study pointed out that there was a smaller but still significant inequity in audit rates between Black and non-Black taxpayers who do not claim the EITC. "The research further suggests that most of this disparity is driven by differences in correspondence audit rates among taxpayers claiming the Earned Income Tax Credit," Werfel acknowledged. The EITC, a refundable credit, has been a way to financially help low- and moderate-income workers (defined in 2022 as those with earned income under $59,187), and especially filers with children. While the IRS does not collect information about race from taxpayers, the report shows that the agency disproportionately flags tax returns that claim the EITC for potential errors. Daniel E. Ho, who led the research team at Stanford, told CNN that his group does not have access to how the IRS conducts audit selection but that the research pointed to the EITC and a "focus on lower dollar, higher certainty claims as opposed to lower certainty, higher dollar value claims" as factors for the disparities. Werfel, who was confirmed by the Senate in March, said the agency is looking into how changing methods for case selection would impact the disparities and that the EITC selection evaluation is a top priority. However, he stated that "research is ongoing and additional time is needed to yield a robust understanding of the drivers of this disparity and to thoroughly evaluate the right potential programmatic changes to address it." In light of the news, Democrats on the Ways and Means Committee have promised that they "will not rest in our quest to build a tax system that works fairly for all Americans and we will continue our rigorous oversight of the IRS to end these disparities." The IRS is currently undergoing a massive overhaul, thanks to an influx of funding, totaling $80 billion over a decade, from the Inflation Reduction Act. The sweeping tax and climate law was passed by Democrats along party lines last year. Generally, the funding is meant to support the agency in cracking down on tax cheats and providing better service to taxpayers. Biden administration officials have repeatedly said that taxpayers earning less than $400,000 a year won’t face an increase in taxes due to the new funding, though there is some uncertainty about how exactly the IRS can ensure this. This story has been updated with additional reaction. The-CNN-Wire ™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.
By: Pristine Villarreal
May 17, 2023