The Internal Revenue Service was 5 ½ times more likely to audit the tax returns of the working poor in 2022 than all other taxpayers, according to a Syracuse University report.
Filers with incomes under $25,000 were more apt to be audited because the IRS viewed them as “low-hanging fruit,” said Susan B. Long, an associate professor of managerial statistics at the Whitman School of Management and the author of the report. In an era of underfunding, she said, the IRS has increasingly relied on “correspondence audits,” in which the agency writes the person being audited asking for specific documentation. She said audits of more affluent taxpayers, whose returns are often more complex, tend to lend themselves to more expensive face-to-face meetings with revenue agents.
“They’re essentially being targeted,” Long said of the high rate at which the lowest-income wage-earners have been audited. “It’s also easy to go after them because basically they don’t respond, and then they’re automatically assessed [what the IRS claims they owe].
The lack of response often isn’t due to taxpayer apathy, Long said. Few taxpayers can get through on the telephone numbers the IRS provides. Customer service representatives only answered about 11% of calls, according to the 2021 National Taxpayer Advocate’s report to Congress. The Taxpayer Advocate Service is an independent organization within the IRS.
Signal Cleveland has asked the IRS to respond to the university’s report. We will update this story with the response. The report quotes a former IRS official as saying that the 2021 “report by Syracuse University is absolutely 100% false.”
Daniel Werfel, who the Senate confirmed March 9 as IRS commissioner, said during confirmation hearings that he would give priority to making sure the wealthiest Americans paid their full share of taxes.The Biden administration has made a commitment to not increasing audit rates, based on recent years, for taxpayers with incomes under $400,000.
The working poor are usually audited over their eligibility for the Earned Income Tax Credit (EITC), a tax break for low-wage earners, Long said. However, she said many of the working poor are eligible for EITC. She said the IRS’ own studies show that nearly a quarter of people who are eligible for EITC don’t claim it.
The university’s report was done by its Transactional Records Access Clearinghouse (TRAC), a nonpartisan, nonprofit data research center. Long is co-director. The report is based on an analysis of internal IRS management reports, which give aggregate data about tax returns. The data does not include names or other personal information about filers. The report, released in January, is still timely because tax season is in full swing.
The report found that the odds of audit for returns filed by those earning less than $25,000 in 2022 was 12.7 out of every 1,000 returns filed. For all other filers, the rate was 2.3 for every 1,000 returns filed. That means low-income workers’ chances of being audited were about 5 ½ times that of all other filers. Similar patterns of the working poor being disproportionately audited held true for 2021 and 2020, the report found.
Long said the working poor can decrease their chances of being audited by participating in free tax preparation programs, such as one offered by the Cuyahoga EITC Coalition. See the Signal Cleveland story It’s tax season, and this local organization wants to help you file your taxes to find out more about the program. The IRS is one of the program’s funders.
Long is hoping that the $80 billion the IRS will get over the next 10 years as part of the Inflation Reduction Act will help make who gets audited more equitable. She said additional funding should translate into everything from hiring more customer service reps to more resources to do the complex face-to-face audits. The cheaper correspondence audits accounted for “85 percent of what IRS counts as audits of 1040 returns,” the report states.
“The IRS hadn’t been given adequate resources in the past,” Long said. “They are not going to be able to magically change overnight.”