The head of the Internal Revenue Service acknowledged Monday that Black taxpayers appear to be audited at outsized rates, months after a study pointed at disparities and the prospect that audit-selection algorithms could be at fault.
“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,” IRS Commissioner Danny Werfel said in a letter.
As an IRS review continues, Werfel said he’s “laser-focused” on making changes before the start of the 2024 tax-filing season.
Black taxpayers were audited at roughly three to five times the rate of other taxpayers, according to a January study from researchers at Stanford University and economists at the Treasury Department’s Office of Tax Analysis.
The IRS doesn’t collect information about race on tax forms — and it doesn’t consider race as a factor on which cases it picks for audits, Werfel emphasized Monday.
But researchers turned their focus on the algorithms helping the IRS pick cases for review when tax returns claim the Earned Income Tax Credit. The credit is a long-standing provision aimed at low- and moderate-income working households.
The IRS has come into $80 billion in funding over a decade due to the Inflation Reduction Act, and more than half the money is dedicated to more tax enforcement for rich taxpayers and corporations. Audits for households making under $400,000 will increase compared to recent levels, Werfel and other Biden administration officials have said.
“The ongoing evaluation of our EITC audit selection algorithms is the topmost priority” in a review to spot uneven treatment in how the IRS administers the tax code, Werfel said in his letter to Sen. Ron Wyden, D-Ore., who chairs the Senate Finance Committee.
Werfel said he’s “committed to transparency” as the research continues.
Certain conclusions were already clear for Wyden.
“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,” he said in a statement.
Wyden said he’ll be re-introducing legislation that would require reviews of private-sector algorithms to spot racial bias. “And I’m interested in requiring similar protections against bias in government systems,” he added.
Werfel’s letter was “an important step,” according to a statement from Chye-Ching Huang, executive director of New York University Law School’s Tax Law Center. But there are other questions that still have to be answered, she said.
“The IRS should shed more light on these issues in future updates, and Congress should continue pressing it to do so,” Huang said.
This story originally appeared on Marketwatch
