As last-minute tax filers scramble to meet Tuesday’s (April 18) midnight filing deadline, it’s unclear whether the IRS will fix the reported racial bias uncovered in its audit system. But the disparities between how the agency treats Black taxpayers and others are glaring.

Sen. Elizabeth Warren, a Massachusetts Democrat, sent a letter April 13 to IRS Commissioner Daniel Werfel and Treasury Secretary Janet Yellen urging them to correct the “racial inequalities in tax enforcement.”

Earlier this year, Stanford University published a working paper that revealed Black taxpayers receive IRS audit notices approximately 3 to 5 times the rate of non-Black taxpayers.

“Clearly, race-blind tax data has not led to race-blind tax enforcement outcomes. The IRS should collect racial data in a way that protects taxpayers and allows the IRS to guard against racial bias,” wrote Warren, who has oversight of the IRS as one of her duties as a member of the Senate Committee on Finance.

The IRS’s racially biased audit selection system is well-known. In 2019, a ProPublica reported that predominantly Black and poor Humphreys County, Miss., was the most heavily audited county in the nation. According to the report, the median annual household income there was just $26,000. But Humphrey residents were audited 51 percent higher than Loudoun County, Va., where residents had the highest median income in the nation at $130,000.

According to ProPublica, taxpayers who receive the earned income tax credit (EITC), a tax break for low to moderate earners, are audited at a higher rate than all but the richest taxpayers.

In her letter to the agencies, Warren notes the new study found that much of the racial disparity stems from Black taxpayers disproportionately claiming EITC and the IRS disproportionately auditing filers who use the EITC tax break.

“But the vast majority – nearly 80 percent – of this racial disparity is driven by inequity in audit rates among taxpayers who claim EITC,” Warren wrote, adding that “unmarried Black men with children that claim EITC care being audited at over twice the rate of their non-Black counterparts”.

Researchers found the main source of bias in the auditing system: a set of IRS computer algorithms, according to the new study conducted by economists from Stanford University, University of Michigan, the University of Chicago and the Treasury Department. But the IRS keeps details of its algorithm secret to prevent tax evaders from exploiting that information.

The bias also stems from the IRS’s preference to avoid auditing complicated income tax returns, the researchers said. Black taxpayers are less likely than others to report business income that might require tax auditors to have expertise evaluating them. At the same time, Black taxpayers are also more likely to file returns with common errors that are easy for tax agents to quickly identify.

While not making any formal recommendations, the researchers suggested “several potential pathways'' to remove bias from the IRS audit system.

One alternative is using a method that focuses on predicting the magnitude of taxpayers’ underreported income instead of the likelihood of underreporting. The IRS could also shift its resources to target complex returns rather than focusing on the simpler returns that are less expensive to audit.