Goal for next Juneteenth: ending racial bias in tax system

June 19, 2023

Communities across the United States this long weekend celebrated the newest federal holiday, Juneteenth.

The name comes from combining June and nineteenth, the day in 1865 when official word arrived in Galveston, Texas, that President Abraham Lincoln had signed the Emancipation Proclamation 2½ years earlier.

Yeah, late. Very late on the part of early Texans in recognizing that owning people not only was abhorrent and reprehensible, but finally and officially illegal.

And three years into formal federal recognition of Juneteenth as a holiday, the whole country continues to grapple with slavery and racial bias and their continuing effects.

That includes taxes.

IRS admits racial bias in audit process: Last month, the Internal Revenue Service acknowledged that Black taxpayers have been far more likely to be audited than others. The tax agency also said it is considering changes to its tax examination selection process to address tax code enforcement discrimination.

“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,” wrote IRS Commissioner Daniel Werfel in a letter to Sen Ron Wyden. The Oregon Democrat is chair of the Senate Finance Committee and had raised the racial bias issue during Werfel’s confirmation hearing.

Most of the audit disparity, said Werfel, “is driven by differences in correspondence audit rates among taxpayers claiming the Earned Income Tax Credit (EITC).”

“We are deeply concerned by these findings and committed to doing the work to understand and address any disparate impact of the actions we take,” wrote Werfel, adding that immediately following his confirmation he met with the IRS team that had been studying the tax/racial bias issue.

Much of the tax agency’s data reflected that of private studies, including that of economists from Stanford University, the University of Michigan, and the University of Chicago, which Werfel cited in his letter.

More time and research: Of course, we are talking about the federal government and one of its biggest bureaucracies. So don’t expect any imminent action to correct the biased examination process.

But as the self-help credos note, admitting you have a problem is the necessary first step to correcting that problem.

Werfel said the IRS is “dedicating significant resources to quickly evaluating the extent to which IRS’s exam priorities and automated processes, and the data available to the IRS for use in exam selection, contribute to this disparity.”

The commissioner pledged to “stay laser-focused on this to ensure that we identify and implement changes prior to next tax filing season.”

In addition, Werfel wrote, “As we continue to evaluate ways to address any bias that exists within our audit program, the IRS will take steps to advance our commitment to fair and equitable tax administration more broadly.”

He also said he expects to be able to update Wyden and the SFC members “on a regular basis on our progress on these initiatives.”

Hopefully, by Juneteenth 2024 that will include some much-needed corrective action in making the application and enforcement of federal taxes fairer for all.

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