Black Americans Are Much More Likely to Face Tax Audits, Study Finds

Instead, the researchers built a way to essentially fill in the blanks on taxpayer race, through a partnership with Treasury that gave them access to 148 million tax returns and 780,000 audits, primarily from 2014, but ranging from 2010 to 2018.

They used taxpayer names — first and last — and the census demographics of their neighborhoods to effectively guess the race of any given filer. Then they examined those results in a small sample of returns from taxpayers who had reported their race elsewhere, on state election forms, in order to be confident that their estimates were correct.

The eventual findings were stark and surprising, the authors said. They saw an immediate correlation between the racial composition of neighborhoods and the audit rates in those areas — vivid signs of significantly higher audit rates for Black taxpayers.

Black Americans are disproportionately concentrated in low-wage jobs. They are more likely than whites to claim the E.I.T.C. The authors wondered if that prevalence in claiming the credit might explain why Black taxpayers face more audits, because IRS data show the agency audits people who claim the E.I.T.C. at higher rates than other taxpayers.

But as the research progressed, the authors found the share of Black Americans claiming the E.I.T.C. only explained a small part 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 E.I.T.C. claimants who are not Black.

Treasury officials are aware of the findings. The department started an advisory committee last fall to help it focus on disparities faced by Americans of color. This month, researchers from the department published an analysis of racial disparities in the tax code. It found a wide range of tax advantages that largely help higher-income Americans, like the mortgage interest deduction and preferential tax rates for investment income, disproportionately benefit white taxpayers.

Article source: https://www.nytimes.com/2023/01/31/us/politics/black-americans-irs-tax-audits.html