The IRS is making moves to rectify a longstanding issue surrounding the audit selection process for low-income earners, particularly those claiming the earned income tax credit. Following revelations of significant disparities in audit rates among different demographic groups, the IRS Commissioner, Danny Werfel, announced during a House Ways and Means Committee hearing that the agency is implementing changes to reduce audits targeting this group.

The decision comes after a study by economists from prestigious institutions highlighted the disproportionate scrutiny faced by Black Americans in IRS audits, with some facing three to five times higher audit rates compared to other taxpayers. This disparity was attributed to a flawed algorithm used by the IRS in selecting audit candidates, with particular attention drawn to its impact on those claiming the earned income tax credit.

IRS Commissioner Werfel acknowledged the findings, affirming the agency’s commitment to addressing the issue. Efforts have been underway to modify the audit selection algorithm, aiming to mitigate the inequitable impact it has had on low-income earners. However, Werfel noted that further validation of the changes is necessary before full implementation.

The earned income tax credit, intended to provide financial support to low- and moderate-income working individuals and families, has been marred by complexity and high error rates. Despite its importance, nearly 1 in 5 eligible taxpayers fail to claim the credit, often due to oversight or unawareness of eligibility.

For tax year 2023, the earned income tax credit could provide substantial relief, with eligible households potentially receiving up to $7,430, depending on the number of qualifying children. Additionally, workers without qualifying children may still be eligible for up to $600 in credits.

The IRS’s decision to address the disparities in audit selection is a significant step toward ensuring fairness and equity in the tax system. By acknowledging and taking action on concerns raised by researchers and advocates, the agency aims to create a more just environment for low-income taxpayers navigating the complexities of tax credits and audits.