Thomson Reuters Covers On-going Conversations Since Goldin and Colleague’s Study on IRS Algorithmic Discrimination
Analysis: How the Tax World Has Responded to Stanford’s Study on Black Audit Rates
In the months following the release of joint research finding Black taxpayers are more frequently audited than others, the tax community has engaged in an ongoing conversation on the agency’s race-neutral stance, biases in enforcement algorithms, and what can be done to promote equity amid systemic issues.
The Stanford paper.
In January 2023, a mixed team of academics and IRS researchers collaborated at the Stanford University Institute for Economic Policy Research to release a working paper titled “Measuring and Mitigating Racial Disparities in Tax Audits.” The paper’s core finding that made its way through mainstream media was that Black taxpayers have their tax returns audited between 2.9 to 4.7 times the rate of non-Black taxpayers.
Earned income tax credit (EITC) claims were identified as the main driver of this disparity. That is, Black EITC claimants were audited far more than others claiming the EITC. The researchers point to the IRS’ internal audit selection algorithms for this, as they are designed to identify erroneous refundable credit claims instead of focusing on the highest amounts of underpaid tax. Minimizing the so-called no-change rate, or the rate in which returns picked for examination do not result in a change, is the priority for compliance algorithms. In other words, the IRS favors auditing the highest amount taxpayers they think, intentionally or unintentionally, overstated tax benefit claims rather than recouping the most uncollected tax possible.
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