Stanford's Institute for Economic Policy Research published a study on Monday, January 30, finding that the Internal Revenue Service audited Black taxpayers at 2.9 to 4.7 times the rate of non-Black taxpayers.
Although the I.R.S. does not note taxpayer race, Stanford researchers used a partial identification strategy to estimate the differences.
The primary source of the difference between Black and non-Black taxpayers was varying audit rates by race among taxpayers claiming the Earned Income Tax Credit, which aims to aid low- to moderate-income workers in claiming tax breaks.
The study's findings do not suggest that bias from individual tax enforcement agents is occurring but that the racial disparity in audits might be due to the computer algorithms that the I.R.S. employs for selection.
Additionally, the researchers did not find evidence that Black Americans engage in more tax evasion than other groups.
The I.R.S. has rolled out new automated systems that select returns for audit over the past decade to improve customer service and to maintain tax enforcement despite budget cuts. These mechanical systems disproportionately flag returns with possible mistakes in claiming particular tax credits, like the Earned Income Tax Credit.
Stanford's researchers identified a few explanations for why Black Americans are more likely to be targeted.
Primarily, it is more difficult for the I.R.S. to audit returns that include business income and Black taxpayers are less likely than others to report business income. Returns with business income necessitate expertise from individual auditors, so the I.R.S. tends to target returns that are easier to audit.
Additionally, Black taxpayers seem to disproportionately file returns with possible mistakes that are simple for I.R.S. systems to identify, including claiming tax credits that taxpayers are not eligible for.
The researchers found that the I.R.S. tends to focus primarily on audits that are less time-consuming and require less expertise, which leads to disproportionate auditing of Black taxpayers rather than other groups.
Black Americans are disproportionately concentrated in low-wage jobs and are more likely to claim the E.I.T.C.
Previous research has demonstrated that the I.R.S. audits people who claim the E.I.T.C. at higher rates than taxpayers who do not. Still, more than 75% of the difference stems from how much more frequently Black taxpayers claim the E.I.T.C. are audited than non-Blacks who claim the same credit.
The U.S. Department of the Treasury created a new racial equity committee last fall to decrease economic disparities between racial groups. Earlier this month, researchers from the department published an article that analyzed racial disparities in the tax code. The researchers found many tax advantages that aid higher-income taxpayers, such as the preferential tax rates for investment income.
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