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IRS Exams Focus on EITC Claims, Not Poor, Inspector General Says

Posted on Sep. 27, 2019

The IRS audits low-income taxpayers more often than higher-income filers because it is short of resources, not because it is targeting them.

Earned income tax credit exams were the only examination growth area at the IRS in fiscal 2018, with 4,000 additional exams, but not because of any apparent bias, the Treasury Inspector General for Tax Administration reported to a hearing of the House Appropriations Financial Services and General Government Subcommittee on September 26.

Inspector General J. Russell George added that correspondence tax examiners who typically audit EITC and other less-complex cases were also the only examination job that showed growth at the IRS during that time, with the addition of 290 examiners.

George told subcommittee Democrats that his office hadn’t investigated concerns about racism and bias in the IRS’s examination policies, but would add it to its list.

“So if you have fewer resources, it makes sense to audit poor people more?” asked subcommittee Chair Mike Quigley, D-Ill.

“It’s somewhat more complicated than that,” George replied. Audit work on EITC claimants is easier than on high-income taxpayers, “especially with the work of junior IRS employees,” he said. “The more sophisticated the income tax, the more involved it is, the longer it takes. It really boils down to how [the IRS] allocates their resources.”

However, “none of our work has shown any evidence that bias is occurring in terms of those with money versus those with less money,” George said. “But there is no question that more low-income people are being examined than upper-income people.”

George also pushed back when Rep. Charlie Crist, D-Fla., showed a map that he said illustrated an apparent pattern of bias against low-income taxpayers in audit rates. The map tracked closely with large-population and low-income-population states, which in turn track with EITC claimants, the inspector general countered.

Less Money, Less Work

The subcommittee hearing ranged from the IRS’s recent audit preferences to its modernization plans, and TIGTA’s own budget.

George said the IRS will incur at least $430 million in new costs and needs more than 700 full-time-equivalent employees to implement the Tax Cuts and Jobs Act over the next three years. That includes $129 million to expand the identity protection personal identification number program and $83 million for development of an online Form 1099 platform for gig economy workers, he said.

IRS technology modernization will cost another $2 billion to $3 billion over six years, George said. “If past is prologue, it’s going to be a challenge for” the IRS, given the agency’s IT performance track record, and with multiyear budget uncertainty, George said.

Even the inspector general’s office is feeling the pinch, with an estimated $4.2 million budget cut planned for fiscal 2020, George said.

“With less resources, we’ll be able to do less work,” George said.

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