March 23, 2023

Black Americans are up to five times more likely to have their federal tax returns audited than taxpayers of other races, according to a new study released this week. 

With the IRS now accepting tax returns, the study provides evidence that some Americans have a greater risk of seeing an audit, a process that often delays refund checks. 

The higher audit rate for Black taxpayers is due to a flawed AI algorithm relied on by the IRS to decide who gets audited, the study’s authors said. The study, which taps data from more than 148 million anonymous returns and 780,000 audits, offers suggestions for how the IRS might fix the disparity, including focusing on auditing filers with complicated returns. 

“The IRS should drill down to understand and modify its existing audit selection methods to mitigate the disparity we’ve documented,” Stanford University law professor Daniel Ho, who co-wrote the study. “And we’ve shown they can do that without necessarily sacrificing tax revenue.”

Tips for taxpayers as filing season begins


“Equitable enforcement of our tax laws is a top priority for the Administration, and resources provided by the Inflation Reduction Act will enable the IRS to upgrade technology and hire top talent to go after wealthy tax evaders,” a Treasury spokesperson said in an email to CBS MoneyWatch.

The IRS, a bureau of the U.S. Treasury Department, didn’t immediately respond to a request for comment Wednesday.

“Small dollar” audit cases

The study, published Tuesday comes from Ho and a team of other researchers including University of Michigan economist Evelyn Smith. 

Even though many of the factors the IRS’ algorithm relies on are secret, the researchers said the program prioritizes “small-dollar, high certainty” audit cases and places less emphasis on how much a filer is claiming in income, Smith told NPR on Wednesday. 

Black taxpayers tend to make the types of mistakes that the IRS historically has focused on,” Smith told NPR. “So an example would be claiming dependents. The IRS focuses very heavily on ensuring that dependents that are claimed for the purposes of EITC meet the eligibility criteria.”

IRS says tax refunds may be smaller this year


The study represents the first time the IRS has given an outside research team so much access to tax returns and completed audits, Ho and the others said. The returns, which were filed between 2010 and 2018, don’t reveal the filer’s race, so researchers used a special method (cross-referencing names, geography and Census tract data) to loosely predict which returns were filed by Black taxpayers.

The researchers said there’s no evidence that IRS agents — who don’t see the race of a tax filer — are purposely discriminating against Black Americans. However, the IRS could eliminate the disparity by auditing people with complex tax returns and people who underreport their income, they said. 

The IRS’ audit rates have drawn criticism from other researchers as well as lawmakers, with a 2022 report finding that low-income households are five times as likely to be audited as higher-income taxpayers. That is due to higher audit rates linked to the Earned Income Tax Credit, a tax benefit for low-income workers that often leads to errors on tax returns. 

The Stanford study also found a link between Black taxpayers claiming the EITC and being audited. Black people accounted for 21% of EITC claims in 2014 but they were 43% of EITC audits.

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