A new study published this week indicates that Black Americans are up to five times more likely to have their federal tax returns audited than taxpayers of other races.
Black Americans are at least three times more likely to be audited by the Internal Revenue Service, according to a study published by the Stanford Institute for Economic Policy Research (IRS).
Black Americans Are More Likely To Be Audited By IRS
You may be wondering why the IRS is targeting Black people when there have been numerous instances of wealthy white people committing financial crimes.
With both the IRS now accepting tax returns, the study provides evidence that certain Americans are at a greater risk of being audited, a process that frequently causes delays in the issuance of refund checks.
The higher audit rate for Black taxpayers is the result of a flawed AI algorithm used by the IRS to determine who gets audited, according to the authors of the study.
The study, which utilizes data from more than 148 million anonymous tax returns and 780,000 audits, provides suggestions for how the IRS could address the disparity, including a focus on auditing filers with complex returns.
The authors from Stanford, the University of Michigan, and the University of Chicago discovered that the majority of discrepancies occurred during audits of Earned Income Tax Credit recipients (EITC).
For those unaware, the EITC is a tax credit for workers with low to moderate incomes. According to the report, Black taxpayers accounted for 21 percent of EITC claims but 43 percent of EITC audits.
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EITC Eligibility Is Higher Among Black Taxpayers
This finding contradicts the notion that audit disparities were a direct result of Black people being more likely to receive the EITC and, as a result, being more likely to appear on the IRS’ radar.
In fact, the study found that only a small portion of the overall disparity was attributable to Black Americans’ EITC participation rates.
The authors contend that the algorithms used to determine which tax credit recipients to audit disproportionately target African-American taxpayers. Moreover, it appears that the algorithm does so at the expense of identifying individuals who underreport their taxes.
The IRS’s tendency to target individuals who are easy to work with rather than those who are most likely to commit tax fraud is a persistent problem. This is the first time the IRS has granted an external research team such extensive access to tax returns and completed audits.
Researchers used a special method (cross-referencing names, geography, and Census tract data) to predict which returns were filed by Black taxpayers based on returns filed between 2010 and 2018. According to the researchers, there is no evidence that IRS agents who cannot see the race of tax filers intentionally discriminate against African-Americans.
According to them, the IRS could eliminate the disparity by auditing individuals with complex tax returns and those who underreport their income. Low-income households are five times more likely to be audited than higher-income taxpayers, according to a report from 2022.
The IRS audit rate has been criticized by other researchers and lawmakers. This is due to increased audit rates associated with the Earned Income Tax Credit, a tax benefit for low-income workers that frequently results in tax return errors.
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