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Does the IRS audit some people more often than others?


Is the IRS more likely to audit some people than others? A study that included scholars and researchers from the Treasury Department finds Black Americans are three times more likely to be audited. The authors include Evelyn Smith, a Ph.D. candidate in economics at the University of Michigan. Welcome to the program.

EVELYN SMITH: Thanks, Steve.

INSKEEP: How conclusive was your evidence that Black people are audited much more?

SMITH: Very conclusive, right? As you mentioned, we do find that Black taxpayers are three to four times as likely to be audited as everyone else. It's a big finding. It's a troubling one. And furthermore, we find that these disparities are concentrated among low-income taxpayers, particularly among taxpayers who are claiming the Earned Income Tax Credit.

INSKEEP: Wow. There is so much to follow up on here, starting with how this would even happen. You would like to presume that auditors, or even computer algorithms, are just picking out people to audit based on the numbers. So how would race even enter into this?

SMITH: So you're correct to point out, you know, some of these mechanisms. I want to be clear. We don't find evidence that these disparities are driven by explicit bias on the part of IRS or its revenue agents. Rather, we find that they're driven by IRS' tendency to prioritize small-dollar, high-certainty cases and to focus on specific issues with refundable credits like EITC rather than the total dollar amount of underreporting.

INSKEEP: I guess we should explain the earned income tax credit for those who are not familiar. If you're working a job, you're making an income, but not a lot of income, the earned income tax credit is money back to you. That helps you pay the bills and take care of your family. So it is something that lower-income people would get. And you're telling me that that people who get that specific tax credit are audited more often?

SMITH: Yes. But an important part of the paper is that we find that it's not just that EITC claimants are audited more often. It's that among EITC claimants, Black EITC claimants are more likely to be audited than non-Black EITC claimants.

INSKEEP: So it's not just socioeconomic; it's race. How would that happen?

SMITH: So what we find is that Black taxpayers tend to make the types of mistakes that IRS historically has focused on. So an example would be claiming dependents. So the IRS focuses very heavily on ensuring that dependents that are claimed for the purposes of EITC are - meet the eligibility criteria. The IRS has a lot of data on dependents, but not necessarily more accurate data. So they focus very heavily on this issue. And Black taxpayers tend to be caught up in that relative to non-Black taxpayers.

INSKEEP: What did the IRS say when you presented them with these findings?

SMITH: So we have worked in collaboration with IRS and with Treasury. So they are aware of the findings. And, you know, their offices have press releases on this topic that I think you could refer to.


SMITH: But they are aware of the problem.

INSKEEP: And they're trying to look into it. But you name a fundamental issue here that I want you to explain. You said at the beginning that the IRS is more likely to target somebody who's not making very much money than, perhaps, a billionaire who might have billions of dollars in taxes owed. Why would that be?

SMITH: So IRS funding has been falling for at least the last decade. You know, they haven't been able to hire new auditors. They haven't been able to replace auditors that retire. And the implication of that is that the share of audits they devote to higher-income returns, more complex returns have fallen over time. But the share - the audit rate for EITC claimants has not fallen. And that is in part because these audits, or at least the types of EITC audits that IRS does, are pretty simple. They mostly involve sending a letter to a taxpayer and waiting for their response.

INSKEEP: In a few seconds, could the recent increase in IRS funding and staffing improve this problem in any way?

SMITH: It certainly could.

INSKEEP: Evelyn Smith, thanks so much. Really appreciate it.

SMITH: Thank you.

INSKEEP: She's a Ph.D. candidate in economics at the University of Michigan, one of the authors of a study that found that Black Americans are three to five times more likely to be audited than other people. Transcript provided by NPR, Copyright NPR.