The Internal Revenue Service is backing up claims by a study that found Black taxpayers are audited at higher rates than other racial groups.
IRS Commissioner Daniel Werfel acknowledged the disparity in a letter to the U.S. Senate on Monday, saying the agency is "deeply concerned."
"A recent study estimated, using imputed race values, that Black taxpayers are audited at three to five times the rate of non-Black taxpayers," Werfel wrote. "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 (EITC)."
"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 continued.
In late January, a research team at Stanford University found that Black taxpayers are 3 to 5 times more likely to be audited than are other taxpayers. The reason, the study authors said, wasn't overt racism, but problems in the computer algorithms used to spot potential tax cheats.
The researchers suggest that the IRS set up systems that are more likely to flag tax returns with potential mistakes in how some tax credits, like the EITC, are claimed. There is no evidence that Blacks cheat on their taxes, but they do file at disproportionately higher rates the kinds of returns that the IRS approach targets, according to the study.
The study sparked an outcry in Congress, with multiple lawmakers demanding that the IRS investigate the findings. Werfel's letter was a response to requests for an explanation of the causes of the discrimination and plans for remedying it.
Werfel said while the IRS's internal investigation into the racial disparities is ongoing, he personally would stay "laser-focused" on the problem and implement changes prior to the next tax filing season.
"We are dedicating significant resources to quickly evaluating the extent to which IRS's exam priorities and automated processes, and the data available to the IRS for use in exam selection, contribute to this disparity," he said. "The ongoing evaluation of our EITC audit selection algorithms is the topmost priority within this larger body of work, and we are committed to transparency regarding our research findings as the work matures."
Werfel added that the IRS is working to identify other disparities in how it enforces tax compliance -- including age, gender, geography and ethnicity. Under the Inflation Reduction Act, the IRS received an additional $80 billion in funding that it plans to utilize in getting to the bottom of the issue.
"In the Inflation Reduction Act Strategic Operating Plan, the IRS committed to conducting research to understand any potential systemic bias in compliance strategies and treatments," Werfel said, adding that the IRS will use some of the funding to refine its "approaches to compliance and enforcement to improve fairness in tax administration and maintain accountability to taxpayers as informed by our research."
Senate Finance Committee Chair Ron Wyden, D-Ore., said researchers "did a great service spotting the racial bias in the algorithms that guide audit selection."
"The racial discrimination that has plagued American society for centuries routinely shows up in algorithms that governments and private organizations put in place, even when those algorithms are intended to be race-neutral. This bias is completely unacceptable," Wyden said in a statement.
Wyden also put part of the blame on Republican lawmakers who "strategically gutted the IRS budget in a way that made it virtually impossible to enforce our tax laws fairly."
"Those cuts led to an exodus of the highly-trained staff who know how to root out tax cheating by the wealthy and corporations and an overreliance on these flawed algorithms that we now know trigger a disproportionate number of audits on Black Americans," he said.
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Both Werfel and Wyden pledged to provide updates as research continues and corrective actions are proposed.
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