In response to a recent finding that Black taxpayers are audited at higher rates than non-Black taxpayers, IRS Commissioner Daniel Werfel assured the U.S. Senate Finance Committee chair that the agency is taking steps to address and fix the discrepancy, Accounting Today reported.
Werfel’s letter to U.S. Sen. Ron Wyden (D-Ore.) acknowledged the results of a Stanford University study, released in February, that found that Black taxpayers were audited at 2.9 to 4.7 times the rate of non-Black taxpayers. Werfel was asked about the study during his confirmation hearing this year.
Despite tax audits being race-blind, the study attributed the main source of the disparity between Black and non-Black taxpayers audit rates to "differing audit rates by race among taxpayers claiming the Earned Income Tax Credit (EITC)." This is mainly due to automated algorithms that flag discrepancies in claims for tax credits, the working paper by Stanford’s Institute for Economic Policy Research (IERP) determined.
"We are deeply concerned by these findings and committed to doing the work to understand and address any disparate impact of the actions we take," Werfel wrote. "As soon as I was confirmed, I met with the IRS team that has been studying this issue. Their 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."
“As we continue to evaluate ways to address any bias that exists within our audit program, the IRS will take steps to advance our commitment to fair and equitable tax administration more broadly,” he wrote. “We will work to identify any disparities across dimensions including age, gender, geography, race, and ethnicity … .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.”
“We are also working to advance equitable tax administration by holding accountable unscrupulous return preparers who fail to exercise due diligence and disadvantage taxpayers through poor-quality advice,” he wrote. These so-called “ghost preparers” prepare taxes for filers without identifying themselves to the IRS. “Initial evidence confirms that unscrupulous and ghost preparers disproportionately prepare returns in minority communities.”
The IRS is “making broad efforts to advance our commitment to fair and equitable tax administration and evaluating the best ways to address bias within our audit program,” he concluded. “I expect to be able to update you and the committee on a regular basis on our progress on these initiatives.”
"Today, Commissioner Werfel publicly confirmed that audit rates are disproportionate,” House Ways and Means Committee Democrats said in a statement reported by Accounting Today. “He has committed the IRS to addressing the biased methodology used in the audit program and implementing changes to fix this issue by the next tax filing season. Ways and Means Democrats 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."