IRS Commissioner Danny Werfel published a letter yesterday in which he suggested that there may be racial bias in the selection of tax returns for audit. In fact, he stressed that, “while there is a need for further research, our initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population.” This is far and away the most ridiculous nonsense to come out of the IRS in a while and Commissioner Werfel is either economically ignorant or intentionally misleading.
IRS audits have nothing to do about being black or white; even the IRS itself says they do not know the race of the taxpayer when selecting returns for audit and there is no place on a tax form to denote race when submitting a return to the IRS. Therefore there can be no bias in the algorithm, which is a sophisticated analysis designed to show where taxpayer error occurs.
The problem Mr. Werfel apparently is alluding to relates to the Earned Income Tax Credit (EITC). Congress made the EITC calculations very complicated but also too easy to cheat. It is simply the case that low income taxpayers claiming the EITC statistically have a large error rate, running upwards of 50% per year, which leaves the IRS no alternative but to inquire further via the audit process. Furthermore, improper refunds involving EITC easily amount to billions each year. So those claiming the EITC are either making mistakes or are scamming the system. But whichever it is, it is the EITC calculation on the tax returns of low-income people that triggers the algorithm, not race whatsoever.
Commissioner Werfle is a moron. By even hinting that there is racial disparity in the audit system (that can’t even consider race a factor, mind you) shows a mind-boggling level of incompetence and stupidity. How can a person this woefully inept be in charge of the IRS?