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Make sure you’re crossing yours t’s and dotting your i’s this tax season, because it looks like the Internal Revenue Service (IRS) will be auditing a lot of people. Folks of color may feel it the worst.
A new study published this week by Stanford found that Black Americans are five times more likely to have their federal tax returns audited than taxpayers of other races. Simply put, an audit is the IRS’ pesky way of making sure you have reported all of your financial information and income correctly. Audits can be time consuming and may lead to your refund check being delayed.
AI may be to blame
According to the study, researchers say the higher audit rate for Black taxpayers is due to a “flawed” AI algorithm that the IRS has been using for decades to determine who gets audited. In order to fix the disparity, experts at Stanford studied data from more than 148 million tax returns and 780,000 audits to try and come up with a solution.
“The IRS should drill down to understand and modify its existing audit selection methods to mitigate the disparity we’ve documented,” said Stanford University law professor Daniel Ho, who cowrote the study, according to CBS News. “And we’ve shown they can do that without necessarily sacrificing tax revenue.”
Many factors behind the IRS’ outdated algorithm remain “secret,” but researchers discovered that the program prioritizes “small-dollar, high certainty” audit cases. That means, it pays close attention to common mistakes that Black taxpayers often make.
“So an example would be claiming dependents,” Evelyn Smith, another researcher behind the study shared to NPR. “The IRS focuses very heavily on ensuring that dependents that are claimed for the purposes of EITC – meet the eligibility criteria. The IRS has a lot of data on dependents, but not necessarily more accurate data. So, they focus very heavily on this issue. And Black taxpayers tend to be caught up in that relative to non-Black taxpayers.”
The IRS is working to fix the issue…or so they say
Researchers clarified that there’s no evidence that IRS agents are purposefully discriminating against Black Americans. Agents have no way of determining a taxpayer’s race. But, experts say it’s time for the IRS to get rid of that old dusty algorithm and start auditing people who actually underreport their income.
We couldn’t agree more. And really IRS? You’re auditing folks during Black History Month??! We have got to do better.
In a statement, a spokesperson from the U.S. Treasury Department said they were working diligently to fix the issue.
“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,” the statement read.
This isn’t the first time the IRS has been called out for discrimination. A 2022 report found that low-income households were five times as likely to be audited than higher-income taxpayers. The disparity was linked to the Earned Income Tax Credit, a tax benefit for low-income workers that often leads to errors on tax returns.
Let’s make sure we’re doing things right this tax season, folks. MADAMENOIRE has some great resources that will help you stay organized and audit free below.
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