IRS Promises Changes in Auditing Practices Targeting Black Taxpayers

May 2Internal Revenue Service (IRS) announced steps it’s going to take to eliminate wide disparities in audit rates amongst black taxpayers and other filers.

University researchers and the Treasury Department conducted a study that found that IRS data-driven algorithms chosen black taxpayers for audits 4.7 times more often than taxpayers of other races. Other findings showed that the agency disproportionately scrutinized Earned Income Tax Credit claimants – targeting low- and moderate-income staff and families – with 21% being black taxpayers.

They were also the main focus of 43% of credit audits.

IRS Commissioner Daniel Werfel, who has served since 2023, testified on the matter before Congress in September 2023 and wrote to the Senate Finance Committee that the IRS would make changes.

“We took quick initial motion to dramatically reduce the variety of these audits. We have also made changes to the choice criteria for these audits,” he said, adding that discriminatory audits “reduce confidence in our tax system.”

The agency can also be maintaining a tally of the profits of more wealthy people and huge firms. According to Fox 21 News, because of additional funding from the Inflation Reduction Act, The IRS could also be cracking down on “noncompliant taxpayers who use them to hide or manipulate their income to avoid taxes.”

For millionaires, the control rate was over 70% between 2010 and 2019, and the speed for big corporations dropped by over 50%. The agency estimates the tax gap is $683 billion, made up of taxpayers underreporting income, underpaying or just not filing returns.

Thanks to a joint effort between Werfel and President Joe Biden, the Inflation Reduction Act helped improve taxpayer services and reduced audits for people making lower than $400,000 a yr. “We are reviewing compliance efforts to enhance our commitment to fair, equitable and effective tax administration and to be accountable to the taxpayers we serve,” in keeping with the IRS’s annual update.

“There will be no new wave of audits for middle- and low-income taxpayers; this is not in our plans in any way, shape or form,” Werfel continued.

The recent audit targets shall be high-net-worth entrepreneurs with income exceeding $10 million, large corporations with assets exceeding $250 million, high-net-worth corporations and taxpayers with access to corporate aircraft reminiscent of private jets for private use, and complicated partnerships with assets exceeding $10 million.