IRS continues to audit poorest families more heavily

The Internal Revenue Service has been auditing the poorest wage earners more than higher-earning taxpayers, according to an updated report.

The report, from Syracuse University’s Transactional Records Access Clearinghouse, or TRAC, follows up on a report released earlier this month that covered IRS statistics through the end of last year (see story). It found that low-income workers earning less than $25,000 in total gross receipts were being audited at a rate five times higher than everybody else in fiscal year 2021. The latest report examined IRS tax audits through the end of February. It found the IRS has completed 132,922 audits of low-income wage earners with less than $25,000 in total gross receipts, up from 105,978 audits completed by the IRS a year ago at the end of February 2021.

The report notes that if the IRS continues at this same pace for the rest of this fiscal year, audit rates would inch up to 13.5 per 1000 returns, or slightly higher than the phenomenally high rates last year.

Andrew Harrer/Bloomberg

TRAC found that not only are total correspondence audits up so far this year, but the IRS seems to be increasingly targeting them against the poorest families. “Last year at this same time, 51.6% of all correspondence were targeted at this lowest income group which represents only a small proportion of all taxpayers,” said the report. “The concentration of correspondence audits on this single small group of taxpayers during this filing season has increased to 58.1%. Field audits, although relatively small in number, are also up for these lowest wage earners.”

In comparison, so far in fiscal year 2022 both the number and percentage of correspondence audits as well as field audits dipped for all other taxpayers.

The IRS did not respond to requests for comment. However, at a recent congressional oversight hearing, IRS Commissioner Charles Rettig blasted the earlier TRAC report (see story). “That report from Syracuse University is absolutely 100% false,” he said, in answer to questions from lawmakers. “I’m tired of having to deal with this issue. We audit high-income taxpayers more than any other category in the Internal Revenue Service. Taxpayers reflecting over $10 million of income are audited at a rate exceeding 7%. Taxpayers at the $25,000 level, which is primarily the Earned Income Tax Credit taxpayer, would be the only people we would look at, are audited at 1.1%. Those are correspondence audits.”

At the hearing, Rettig cited the IRS Data Book as evidence, but TRAC pointed out that the IRS omitted statistics on completed IRS audits for the first time from its latest data book for fiscal year 2020. Last week, TRAC sent a letter to Rettig asking him to reinstate publishing the current statistics on the actual numbers of completed IRS audits by examination class, but he hasn’t yet responded to the letter. TRAC had earlier sued the IRS to force it to include the current audit statistics in its previous annual reports.

The Professional Managers Association, a group representing IRS management officials, separately issued a statement Wednesday that seemed to confirm that the IRS is auditing low-income taxpayers at a higher rate than others.

“In the absence of robust enforcement funding, the IRS disproportionately audits low-income Americans, often people of color, with the simplest tax returns to review,” said PMA executive director Chad Hooper in a statement. “These taxpayers are also the least likely to receive taxpayer assistance services. Meanwhile, the IRS infrequently audits high-income earners with complex tax returns due to a lack of time and resources. Our members do not have access to the tools and resources necessary to ensure high-wealth taxpayers are complying with our Tax Code.”

He cited the Biden administration’s recent budget request for $14.1 billion for the IRS for fiscal year 2023. “An equitable tax system relies on an IRS with the resources to serve all Americans equally and assist those without access to paid preparers and tax attorneys," Hooper added. “Ultimately, it comes down to money. We appreciate the Biden administration for putting their money where their mouth is on equity; not only would this funding improve conditions for underserved communities, but all Americans will benefit from the IRS closing the tax gap among high-income earners.”