The IRS is looking to change how it selects which tax returns to audit after concluding that Black taxpayers seem to face more audits than they should, given their share of the population.
Commissioner Danny Werfel said the agency is studying whether to cut the number of audits it does involving taxpayers who claim the Earned Income Tax Credit, a program for the working poor. Mr. Werfel said the IRS might instead pursue audits based on “broader tax issues.”
He said changes will be made before taxes are due next year.
Mr. Werfel revealed the plans in a letter to Sen. Rob Wyden, Oregon Democrat and chairman of the Senate Finance Committee, which oversees the IRS.
His promises came after a groundbreaking study earlier this year found the audit rate for Black taxpayers was as much as 4.7% higher than non-Black taxpayers, with the EITC being a prime reason.
The IRS has always considered the EITC an area ripe for mistakes, so tax returns that claim the EITC do face a larger share of audits than other returns. But the study said that even accounting for the use of the EITC, Black taxpayers still see more audits than other filers.
Black taxpayers accounted for 21% of EITC claims but 43% of audits in 2014, the year under study. The Black population of the U.S. was just 12% at the time.
“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,” Mr. Werfel wrote to Mr. Wyden.
The IRS doesn’t track the race or ethnicity of taxpayers, but researchers used a methodology of deducing race by name and geography.
Mr. Wyden said the IRS needs to get to the bottom of things, and praised Mr. Werfel for the effort.
The senator said he believed the disparate audit rates were the result of discriminatory algorithms that ended up selecting Black taxpayers for audits. Cuts to the IRS budget in the last decade that, he said, “made it virtually impossible to enforce our tax laws fairly.”
Mr. Werfel said the $80 billion infusion of cash Congress and President Biden sent to the IRS in last year’s budget-climate bill will help in that regard.
Congressional Republicans have proposed cutting that funding, saying they believe the money will create a too-aggressive tax agency with the manpower to harass well-meaning taxpayers.
