Black taxpayers in the U.S. are audited at “2.9 to 4.7 times the rate of non-Black taxpayers,” according to a study released this week by the Stanford Institute for Economic Research and Policy.
Tax audits are a method the Internal Revenue Service uses to confirm that taxpayers qualify for benefits they claim.
While researchers noted that “neither we nor the IRS observe taxpayer race,” they explained that they used “a novel partial identification strategy to estimate these differences.”
According to Daniel E. Ho, one of the paper’s authors, the audit disparity is not an intentional decision by IRS staff. Instead, the research team found that “the racial disparity in audit selection is driven by a set of internal IRS algorithms,” said an article shared by Stanford Law School.
“The main source of the disparity is differing audit rates by race among taxpayers claiming the Earned Income Tax Credit (EITC),” said the study authors.
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Per the IRS, the EITC “helps low- to moderate-income workers and families get a tax break.”
By using “counterfactual audit selection models for EITC claimants,” the study authors found that “maximizing the detection of underreported taxes would not lead to Black taxpayers being audited at higher rates.”
Overall, the study found that the U.S. government collects $4 trillion in tax revenue annually. This revenue is used to fund public programs, including economic regulation to military defense.
“Increasingly, policymakers have also come to rely on the tax system for implementing a host of social programs; for example, the Earned Income Tax Credit (EITC) has replaced welfare as the largest cash-based safety net program,” in the country, according to the study.
Going forward, the study authors believe that the IRS should be able to alter its “secret” set of algorithms to reduce the racial disparity they discovered.
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“The IRS should drill down to understand and modify its existing audit selection methods to mitigate the disparity we’ve documented,” said Ho. “And we’ve shown they can do that without necessarily sacrificing tax revenue.”
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