The Internal Revenue Service (IRS) is responsible for enforcing the federal tax code, which includes conducting audits to verify the accuracy of tax returns and ensure that the correct amount of tax has been paid. While less than 1% of individual income tax returns are selected for audit each year, the likelihood of being audited varies significantly depending on factors such as income level, race, and whether the taxpayer claims certain tax credits. This article analyzes the distribution of IRS audits by income and race, exploring the reasons behind the disparities and the recent actions taken by the IRS to address these issues.
Distribution of Audits by Income
The IRS generally audits a larger share of high-income taxpayers than those with lower incomes. However, the audit rate for high-income taxpayers has declined more significantly than for low-income taxpayers since 2010. This decline is primarily attributed to decreased funding for IRS enforcement activities.
Despite the overall decline in audit rates, low-income taxpayers who claim the Earned Income Tax Credit (EITC) face much higher audit rates than other taxpayers with similar incomes. The IRS has stated that this is because the EITC is often claimed improperly, and audits of EITC claims are viewed as more cost-effective than audits of high-income taxpayers.
Distribution of Audits by Race
Research has shown that the IRS is more likely to audit Black taxpayers than those of other races, even though the IRS does not collect information on taxpayer race. This disparity is particularly pronounced among EITC claimants.
Several factors may contribute to the higher audit rates for Black taxpayers, including:
- A higher likelihood of claiming the EITC
- Higher audit rates among Black EITC claimants relative to other EITC claimants
- Higher audit rates among Black non-claimants than other non-claimants
- Potential algorithmic bias in the IRS’s audit selection system
Recent IRS Actions
In response to concerns about the disproportionate impact of audits on low-income taxpayers and taxpayers of color, the IRS has implemented several changes:
- Reducing the audit rate for taxpayers who claim the EITC and other refundable tax credits
- Focusing more resources on examining large partnerships and collecting owed taxes from high-income individuals
- Implementing changes to how it measures children’s residency, which has been identified as a potential source of bias
- Piloting two alternative EITC case selection processes
These changes aim to reduce the audit rates on lower-income taxpayers and shrink the gap in audit rates between taxpayers of different races.
The distribution of IRS audits by income and race raises important questions about fairness and equity in the tax system. While the IRS has taken steps to address these disparities, further research and analysis are needed to fully understand the underlying causes and develop effective solutions.
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FAQ
Who gets audited the most?
Who gets audited more rich or poor?
How does the IRS decide who gets audited?
Who is most likely to get audited?
Poor taxpayers, or those earning less than $25,000 annually, have an audit rate of 0.69% — more than 50% higher than the overall audit rate. It also means low-income taxpayers are more likely to get audited than any other group, except Americans with incomes of more than $500,000. The least likely group to get audited?
Who has the highest audit rate?
Audit rates sharply spike for taxpayers with an annual income of more than $500,000. In fact, wealthy taxpayers with annual income of at least $10 million have the highest audit rate of all groups, at more than 6%. “Statistically, the people over $10 million still have the highest percentage, but their rate of audit is declining,” DiBenedetto says.
Should you get audited by the IRS?
Taxes are one of life’s certainties, but getting audited by the IRS is increasingly less certain these days. In fact, an audit is about half as likely as it was five years ago. Even so, some groups face higher audit rates than others.
What are the different types of IRS audits?
There are three main types of IRS audits. For the mail audit, you don’t have to meet the auditor, you only have to reply to the notices. Second, for an office audit, you will need to visit the IRS office in your area. Finally, if the IRS sees serious issues in your filings, they made conduct a field audit at your premises.