IRS audits Black taxpayers more often than any other racial group: Study
With the 2023 tax season underway, some taxpayers are more likely than others to face audits from the IRS after filing.
Research out from Stanford University found Black taxpayers are 2.9 to 4.7 times more likely to receive IRS audit notices than non-Black taxpayers.
The study does not believe the disparities are due to intentional bias from the IRS staff but rather stem from internal algorithms.
"Even though nobody is trying to be discriminatory or create any kind of disparate impact but the way that we choose policies can still have a disparate impact on different groups," said Hadi Elzayn, a former Stanford University postdoctoral scholar and co-author of the study.
The study also found the IRS disproportionately audits individuals who claim the Earned Income Tax Credit, which is a program that aims to assist low-income workers.
Past research out of Syracuse University has also supported the finding that lower-income taxpayers are disproportionately the subject of audits. Last year, researchers found the lowest income earners were five times more likely to receive an IRS income tax audit.
Elzayn said audits can be time-consuming, costly and stressful on individuals. He also said if individuals don't respond to the letters, the audits can also have a wider impact on individuals who would have received returns or the refundable credit.
"For some of these families, the amount that we are talking about can make up a large difference to their overall income," Elzayn said. "I mean it can be the difference between poverty and not for any given take year so this is a really important domain so it's a very high-stake domain for disparities."
Durham-based principal associate James Heyward with Heyward CPA said these findings don't necessarily surprise him. He explained the type of audits the study looked into often stem from when a taxpayer didn't completely fill out their forms correctly. He said these errors can increase and increase the likelihood of an audit if taxpayers choose inexperienced preparers to assist them.
"These people aren't necessarily practitioners. And so what's happening is the return is being done to get that maximum refund. It may not be adhering to the due diligence that may be necessary for things such as the earned income tax credit," Heyward explained.
He said he often sees advertisements for these types of 'practitioners' in certain neighborhoods and people tend to utilize them when they are trying to get fast cash back or save money.
"I think is a socio-economic issue," he said.
The IRS's auditing decisions and data on tax returns have largely been handled secretly. But, President Joe Biden signed an order that requires all federal agencies to evaluate how their program impact racial and ethnic equity.
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The IRS and tax returns do not ask for an individual's race or ethnicity. Instead, researchers used a method that cross-examined multiple data points to closely predict the race of taxpayers.
"'Oh nobody is asking about your race how could that create any disparate outcomes?'" Elzayn said some might ask. "We've shown that it can create these disparate impacts so now that we know these disparities are out there even though they are not intentional what can we do to fix those?"
Stanford researchers suggested that Congress and the IRS could reexamine the policy choices that lead to the way the IRS selects audits and identify eligibility issues. Elzayn also said increasing resources to IRS could assist.
"This is clearly an important disparity with real effects on people's lives and I don't think it is something that we should let go unexamined and unapproved," Elzayn said.
Heyward said an increase in taxpayers' awareness that Volunteer Income Tax Assistance sites exist might help reduce some of the barriers certain demographics face in accessing quality tax help.
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Heyward suggested that individuals avoid being audited by making sure they take the time to thoroughly get all their information and finances together before filing. He also said if taxpayers plan on hiring a preparer they make sure the individual is working for an actual business. Another red flag to look out for is if your preparer marks your return as 'self-prepared.'
He said if individuals do get a letter from the IRS it doesn't necessarily mean their preparer did anything wrong. Heyward said the first step should be to call the IRS and then figure out if the issue is something you can handle alone or if outside counsel is needed.
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