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As the IRS has begun to accept 2022 tax returns, a new study provides evidence that Black Americans are up to five times more likely to have their federal tax returns audited than taxpayers of other races.
In a process that often delays refund checks, the new study cites the higher audit rate for Black taxpayers is due to a flawed AI algorithm relied on by the IRS to decide who gets audited.
On his first day in office, President Biden signed a series of executive orders seeking to advance racial equity in the federal government and the nation.
According to The Philadelphia Tribune, one of them included a directive to the White House budget office to “study methods for assessing whether agency policies and actions create or exacerbate barriers to full and equal participation by all eligible individuals.”
That order inspired researchers at the RegLab, which uses machine learning and other advanced techniques to help governments improve policies and eventually produced this research.
CBS News reports 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 study, published Tuesday, comes after a 2022 report found 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.
How do Black Americans get audited more than anyone else?
Stanford University law professor Daniel Ho and a team of other researchers, including University of Michigan economist Evelyn Smith, helmed the study and offered insight into its findings.
Even though many of the factors the IRS’ algorithm relies on are esoteric, 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.
“Black taxpayers tend to make the types of mistakes that the IRS historically has focused on. 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,” says Smith.
The authors found the share of Black Americans claiming the EITC only explained a small fraction of the audit differences. Instead, more than three-quarters of the disparity stems from how much more often Black taxpayers who claim the credit are audited, compared to EITC claimants who are not Black.
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.