Black Taxpayers Are More Likely to Get Audited, Data Shows

Everyone pays taxes, so why are Black filers more likely to have their returns further scrutinized?

Filing a tax return can be a daunting process. First of all, if you end up owing the IRS money and don't have the cash in your savings account to cover that obligation, that alone could be a major source of distress.

There's also the idea of getting audited that many tax-filers fear. An IRS audit isn't always a drawn-out, dramatic affair. Contrary to the way you might see audits portrayed in the movies and on TV, the majority of the audits the IRS conducts are correspondence-based in nature -- meaning, they happen through the mail. The IRS simply doesn't have the manpower to send agents into taxpayers' homes every time there's a question about a tax return, or a discrepancy the agency can't reconcile without asking for further information.

But still, tax audits can be stressful in their own right. And a new report reveals that Black taxpayers are more likely to get audited than those who identify as non-Black.

Black tax-filers are more likely to be targeted

A recent Stanford University collaboration with the Department of the Treasury found that Black taxpayers receive IRS audit notices at least 2.9 times, and potentially up to 4.7 times, more often than non-Black taxpayers.

The researchers involved in this study do acknowledge that this disparity most likely is not intentional. Rather, the IRS uses a specific set of algorithms to determine when returns need further examination. But based on those formulas, Black tax-filers may be more likely to end up receiving an audit letter in the mail.

Now, one reason for higher audit rates among Black taxpayers could boil down to a problem with the IRS's algorithm use of the Dependent Database, which uses various data points to confirm the identity of those being claimed as dependents on tax returns. Another reason, however, could boil down to the fact that audit rates tend to be higher among tax-filers who claim the Earned Income Tax Credit (EITC) -- a credit designed to assist low-income households.

One thing that makes the EITC so valuable is that it's a fully refundable credit. Most tax credits will only reduce a given filer's liability down to $0, whereas the EITC will put money in filers' bank accounts if they're due a refund by virtue of the credit alone. But because of high rates of fraud associated with the EITC, the IRS cannot issue refunds associated with that credit prior to mid-February, even though the tax-filing season commonly opens up in late January.

As such, it's not surprising to see that audit rates are higher among filers who claim the EITC. What's interesting, though, is that Black taxpayers accounted for just 21% of EITC claims, but were the subject of 43% of EITC audits, the aforementioned researchers found.

The IRS can try to make things more fair

Although the IRS doesn't seem to intentionally be targeting Black tax-filers as far as audits go, the agency can try to take steps to remedy the problem. That could involve making changes to its algorithms so Black filers are less likely to be disproportionately targeted. It could also involve having the IRS focus more on large-scale audits -- the ones where the IRS does send field agents to the offices of wealthy tax-filers suspected of major underreporting -- and less so on correspondence audits done by mail.