IRS Finds Black People May Be Audited More, Vows Process Review

The IRS’s “initial findings” concur with a recent study that found Black taxpayers may be disproportionately audited, and the agency is evaluating how its processes may play a factor, IRS Commissioner Danny Werfel wrote in a letter Monday.

Werfel’s letter to Senate Finance Committee Chairman Ron Wyden (D-Ore.) comes after Wyden requested during Werfel’s confirmation hearing that he provide the committee with information about the causes of racial disparities in enforcement and how he plans to address the issue within 60 days of confirmation. Wyden’s request was prompted by a Stanford University study whose findings were published earlier this year, which found that Black taxpayers are audited at higher rates than non-Black taxpayers.

Werfel said that soon after his confirmation, he met with IRS researchers examining the issue.

“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,” he said. “We are dedicating significant resources to quickly evaluating the extent to which IRS’s exam priorities and automated processes, and the data available to the IRS for use in exam selection, contribute to this disparity.”

Werfel added that the agency’s work studying the matter includes examining how methodological changes to audit selection, such as putting more of a focus on broader tax issues as opposed to the earned income tax credit, could impact audit rates. He pledged to update the Finance Committee regularly on the IRS’s work.

“As this work progresses, additional information will be shared externally regarding the research findings and the appropriate corrective actions IRS will take,” Werfel said. “I will stay laser-focused on this to ensure that we identify and implement changes prior to next tax filing season.”

The IRS received about $80 billion in multiyear funding in last year’s Inflation Reduction Act, and the agency released a plan for spending the funds last month. Werfel noted that the plan calls for researching any possible systemic biases in tax compliance strategies, and that the funds will help the agency provide more education and assistance to underserved communities about claiming various tax credits.

“In summary, we are 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,” Werfel wrote.

Wyden said in a statement Monday that as the IRS works to use its new funds to overhaul tax enforcement, he plans to ensure “the IRS retools these algorithms to eliminate any racial bias.”

“Commissioner Werfel has committed to implement changes to fix this issue before the next tax filing season begins, but it’s clear there’s more to learn and a lot of work to be done” Wyden said. “As Chairman of the Senate Finance Committee I expect the IRS to provide regular, public updates on their progress.”