The Disproportionate Burden of IRS Audits on Lower-Income Families: An Analysis of the Evidence

The Internal Revenue Service (IRS) is responsible for enforcing the nation’s tax laws and ensuring that all taxpayers comply with their tax obligations. However, recent evidence suggests that the IRS is disproportionately targeting lower-income families for audits, placing an undue burden on these already vulnerable households. This paper will analyze the available data and research to explore the extent of this disparity and its implications for tax fairness and equity.

Evidence of Disproportionate Targeting

Audit Rates:

• Data from the Transactional Records Access Clearinghouse (TRAC) at Syracuse University reveals that nearly 50% of all IRS audits in 2022 were conducted on families earning less than $25,000.
• This audit rate is significantly higher than for higher-income families, with households making over $100,000 facing an audit rate of only 1%.

Audit Type:

• Over 97% of audits conducted on lower-income families are mail audits, which are less resource-intensive for the IRS but can be more burdensome for taxpayers who may not have the necessary knowledge or resources to respond effectively.

Factors Contributing to Disproportionate Targeting

Cost-Effectiveness:

• Auditing lower-income families is often seen as more cost-effective for the IRS, as these audits typically involve simpler tax returns and require less time and resources to complete.

Technology Limitations:

• The IRS’s reliance on outdated technology systems can lead to errors in identifying potential audit targets, resulting in a higher likelihood of lower-income families being selected for audits.

Lack of Representation:

• Lower-income taxpayers are less likely to have access to professional tax preparers or legal representation, which can put them at a disadvantage when dealing with the IRS.

Consequences of Disproportionate Targeting

Financial Burden:

• Audits can be a significant financial burden for lower-income families, who may have to pay for professional assistance or face penalties and interest charges.

Emotional Distress:

• The stress and anxiety associated with an IRS audit can be overwhelming, particularly for families who are already struggling financially.

Erosion of Trust:

• The perception that the IRS is unfairly targeting lower-income families can erode trust in the tax system and discourage compliance.

Recommendations for Addressing Disparity

Increased Funding:

• Provide the IRS with adequate funding to invest in technology upgrades and hire additional staff, enabling them to conduct more comprehensive audits on higher-income taxpayers.

Targeted Outreach:

• Implement programs to educate lower-income taxpayers about their rights and responsibilities, and provide them with resources to assist with tax preparation and audit responses.

Independent Oversight:

• Establish an independent oversight body to monitor the IRS’s audit practices and ensure that they are fair and equitable.

The evidence clearly demonstrates that the IRS is disproportionately targeting lower-income families for audits, creating an unfair and burdensome situation for these already vulnerable households. This disparity undermines the principles of tax fairness and equity, and erodes trust in the tax system. To address this issue, it is imperative that the IRS prioritize increased funding, targeted outreach, and independent oversight to ensure that all taxpayers are treated fairly and equitably under the law.