WASHINGTON (AP) — The IRS said Thursday it has taken steps to address the wide disparity in audit rates between Black taxpayers and other filers, and is closely scrutinizing the returns of larger numbers of wealthy people and large corporations.
“We are reviewing compliance efforts to further our commitment to fair, just and effective tax administration and to hold ourselves accountable to the taxpayers we serve,” said a annual update from the agency.
a study from January 2023, university researchers and the Treasury Department found that IRS data-driven algorithms selected Black taxpayers for audits at up to 4.7 times the rate of non-Black taxpayers. The investigation shows that the IRS has disproportionately audited people who claim the Earned income tax creditwhich targets low- and moderate-income workers and families: While Black taxpayers accounted for 21% of claims for that pause, they were the focus of 43% of audits related to the credit.
“We have taken swift initial action to dramatically reduce the number of these audits. We have also made changes to the selection criteria for those audits,” said IRS Commissioner Daniel Werfel.
Werfel, who was that? sworn in just over a year agohas testified before Congress on the issue and last September wrote to the Senate Finance Committee that the IRS would make changes.
The discriminatory audits, he told reporters, “degrade confidence in our tax system.”
Werfel and the IRS have spent the past year trying to show how money from the Inflation Reduction Act, President Joe Biden's major climate, health and tax law, has helped modernize the agency and improve services to taxpayers, and that people who earn less than $400,000 a year would not be audited this year due to the new funding.
Noting the pledge to keep audit rates for people making $400,000 a year or less at 2018 levels, he said Thursday that “in no way have we exceeded that rate.”
He added: “There will not be a new wave of audits for middle and low income taxpayers – that is not in our plans whatsoever.”
The IRS is focusing next year on using the funding boost to conduct more checks for suspected tax fraud from wealthy people after collecting hundreds of millions in back taxes this year.
Ensuring that people pay their taxes is one of the tax collection agency's biggest challenges. The audit rate of millionaires fell by more than 70% between 2010 and 2019, and that of large companies fell by more than 50%.
The IRS plans to increase audit rates for companies with assets over $250 million to 22.6% in 2026, from a rate of 8.8% in tax year 2019. It also plans to increase audit rates tenfold for large complex partnerships with assets exceeding $10 million.
“While the IRS has accomplished a lot with IRA financing to date,” he said, “we need to do much more to make improvements and transform the IRS for the benefit of taxpayers.”
