Nearly half of all audits the IRS conducted in 2021 were aimed at the country’s poorest taxpayers, according to a new study that called the ratio unfair.
The Transactional Records Access Clearinghouse (TRAC) said the IRS conducted nearly 660,000 audits in the last fiscal year, and about 307,000 of them targeted taxpayers who claim the Earned Income Tax Credit, aimed at the working poor.
Or, put another way, those claiming the tax credit were audited at a rate of 13 per 1,000 returns, while the rest of the country was audited at a rate of 2.6 per 1,000 returns.
“Does it make sense from either an equity or revenue standpoint to focus IRS’s limited firepower on the poorest taxpayers among us – those with incomes so low they have filed returns claiming an anti-poverty earned income tax credit? This question alone raises profound issues,” said TRAC, which is housed at Syracuse University.
TRAC said the IRS can get more bang for its buck by going after wealthier taxpayers, but instead boosted its numbers by going after returns that claim the tax credit, using what’s known as a “correspondence audit.”
That’s an audit that examines just one specific aspect of a single year’s return.
TRAC obtained its data from the IRS under an open-records request.
The organization said it picked taxpayers who claim the EITC because it goes to the working poor, either reducing their tax payments or, in some cases, even boosting the size of their refunds.
There’s a reason the IRS targets returns that claim the EITC: The tax agency figures $16 billion of the $68.2 billion it paid out in 2020 — about 24% — was “improper.”
Some of those errors are intentional fraud, while others result from confusion due to the complexity of the law, the agency says.
The IRS, in a 2020 analysis, acknowledged the high rate of EITC audits.
Citing 2015 data, the tax agency said about 12 out of every 1,000 returns claiming the EITC got an audit.
But for taxpayers claiming income of $1 million or more, the rate was 27 out of every 1,000 returns. TRAC said the rate has dropped to just 22 audits for every 1,000 returns as of 2021.
The IRS was still doing roughly the same number of audits of million-dollar filers, at about 14,000 a year. But the sheer number of millionaires had grown from 478,772 in 2015 to 617,505 in 2021, TRAC said.
Researchers at TRAC said the IRS is padding its audit numbers by going after EITC filers. Of 659,003 audits recorded, 559,420 were done by correspondence.
A correspondence EITC audit averaged five hours, the IRS says. An audit of a million-dollar filer can cover three years of filings, cover multiple related entities, and can take years to resolve.
Those audits also require the highest-trained IRS revenue agents.
Yet TRAC said the number of revenue agents has been slashed from 14,749 in 2010 to 8,642 last year. The number of cheaper and less-trained tax examiners is actually slightly higher now than in 2010.
IRS Commissioner Charles P. Rettig agrees that the agency’s budget is too low.
In an op-ed last month for Yahoo Money, Mr. Rettig said the agency’s troubles in processing tax returns should be blamed on Congress.
He said the IRS has the same number of employees now as it had in the 1970s, despite a 60% increase in the country’s population and new demands on the agency.
• Stephen Dinan can be reached at email@example.com.
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