Internal Revenue Service said black taxpayers are more likely to face an Internal Revenue Service audit, confirming recent findings.
Internal Revenue Service Commissioner Daniel Warfel said the agency is weighing changes to combat discrimination.
A study published in January by economists at the University of Michigan, the US Department of the Treasury, Stanford University, and the University of Chicago found that Internal Revenue Service audits black taxpayers are around 3 to 5 times more likely than other Americans.
The researchers based their assessment on microdata. It was from about 148 million tax returns and 780,000 audits. Those results prompted questions from lawmakers.
Internal Revenue Service Commissioner Daniel Warfel wrote in a May 15 letter to the Senate Finance Committee that although more research is needed, their preliminary results support the finding that black taxpayers may be audited at higher rates than expected based on their population share.
Internal Revenue Service Commissioner Daniel Warfel said that the Internal Revenue Service has devoted significant resources to address discrimination. This included a closer look at the agency’s automated processes and the data used to select tests.
Also, he promised to test algorithms to audit filers claiming that the Earned Income Tax Credit, a tax break for low- to moderate-income workers.
The Earned Income Tax Credit is closely scrutinized because it is refundable. This means that it still provides a refund. This is even if the value of the credit exceeds the tax owed.
Daniel Warfel emphasized that the Internal Revenue Service does not and will not consider race as part of the audit selection process. However, original research suggests that the Earned Income Tax Credit has contributed to disparities.
Warfel said they will focus on this issue to ensure they identify and implement the changes before the upcoming tax filing season.
Ron Wyden, Senate Finance Committee Chairman, said this bias is unacceptable wherever it occurs.
Analysis as a whole
Investopedia shows that Americans often have complained about the structure of the US Internal Revenue Service. They many times questioned the administration of the tax system and the fairness of its administration.
Recent legislation creating a new 15 percent alternative corporate minimum tax shall provide $80 billion in increased IRS funding. IRS shall use it to address several of these concerns. They will enhance customer service, improve enforcement, upgrade systems, and reduce the gap between taxes owed and collected.
Investopedia further shows that effective tax rates may become more progressive. Also, corporate tax reforms may apply to a bigger range of corporate entities. The taxpayer’s perception of the law’s fairness can be improved if the tax deductions are re-evaluated. At the same time, any inappropriate, unnecessary, and excessive tax benefits, especially the special interest write-offs, should be reduced or eliminated.
With increased funding, Internal Revenue Service auditors should be able to spend the time necessary to evaluate the facts and circumstances presented in tax returns filed by business entities and wealthy individuals.