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Black Americans are audited 3 to 5 times as often as other taxpayers

MARY LOUISE KELLY, HOST:

The IRS is expected to respond to disturbing findings this week. Researchers say that African Americans are audited much more than other taxpayers. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: The first time I spoke to William Ayers was about three years ago while researching a story on the IRS.

WILLIAM AYERS: I've been audited at least three times.

HORSLEY: Ayers lives in Greenville, Miss., and only made about $30,000 a year working at a La-Z-Boy factory. Nevertheless, he often found himself in the crosshairs of the IRS.

AYERS: Well, I guess I'm just a casualty of being black and poor.

HORSLEY: Now there's academic research to back that up. Stanford professor Daniel Ho and his colleagues found African Americans are far more likely to be audited by the IRS than other taxpayers.

DANIEL HO: What we found was that the audit rate of Black taxpayers was 3 to 5 times the rate of audits for non-Black taxpayers.

HORSLEY: Ho says the disparity doesn't appear to be deliberate. The IRS doesn't ask taxpayers about their race, and most of the audits are conducted by mail. But something in the way the agency decides who to audit results in Blacks being disproportionately targeted. And the new IRS commissioner, Danny Werfel, who was sworn in just two months ago, has promised to find out why.

(SOUNDBITE OF ARCHIVED RECORDING)

DANNY WERFEL: It's essential that our tax system is fair. I engaged with my team on day one to make sure it's a priority to fully understand, how do we get to the bottom of it and figure out what we need to do going ahead?

HORSLEY: Werfel is expected to report his findings to the Senate Finance Committee this week. The IRS process for selecting audit targets is carefully guarded to prevent people from gaming the system. But there are some theories about what's going on. Nina Olson, who was a longtime National Taxpayer Advocate at the IRS, says the agency often seems more interested in policing people who receive payments from the government - through the earned income tax credit, for example - than finding those who fail to pay what they owe.

NINA OLSON: One thing that has really disturbed me over the years is the sense that somehow, a dollar that was improperly paid out was somehow more valuable than a dollar that was not collected from someone who underreported their cash income as a business. You know, it's all a dollar to the public fisc.

HORSLEY: Researchers found that a narrow focus on tax credits, as opposed to unpaid taxes, results in a higher rate of audits for African Americans. Another theory is that the IRS is looking to boost its batting average, going after people with a high likelihood of even small tax errors rather than pursuing big tax cheats, which could yield the occasional home run but also a lot of strikeouts. Wealthy taxpayers with opaque sources of income can hire lawyers and accountants to help them dodge the tax collector. William Ayers says it's no wonder the IRS prefers to come after people like him.

AYERS: Because the folks who owe a lot - if they got money, they're going to fight them because they got the means to fight. Whereas people like us - we don't know that we have the means to fight.

HORSLEY: But soon the IRS will have the resources to correct that imbalance. Congress has allocated an extra $80 billion for the tax collector over the next decade, with much of that money earmarked for beefed-up tax enforcement. Nina Olson, who now runs the Center for Taxpayer Rights, says that's an opportunity to correct the racial disparity in tax audits, but not if the IRS just puts more money into the same broken system.

OLSON: Before you start hiring scores of new auditors, you need to do your research and train them on the new models before you go out and train them on the old way of doing things. You know, fix it.

HORSLEY: Stanford's Daniel Ho says the current system is not only unfair to African American taxpayers. It's also leaving money on the table. He notes that an estimated $500 billion worth of taxes goes uncollected every year. A more effective audit system that sniffs out big tax cheats would not only be more racially equitable. It would also raise more money for the government. Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.
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