The Internal Revenue Service (IRS) is planning an increase in the number of its audits for the inhabitants of the United States with greater purchasing power and the largest corporations and, in turn, make a modification of a procedure that has generated a disproportionate audit rate for taxpayers of certain minority populations.
“We are overhauling compliance efforts to advance our commitment to fair, equitable, and effective tax administration and hold ourselves accountable to taxpayers we serve,” the IRS said in an annual update from the agency released Thursday.
In a study conducted in 2023 by the Treasury Department and university researchers, it was found that algorithms based on data used by the IRS selected African-American taxpayers up to 4.7 times more often for audits than “white” taxpayers.
The study found that those applying for the Earned Income Tax Credit, which is designed for limited- and moderate-income workers and families, are disproportionately audited.
Populations Being Targeted by IRS
While it is true that African-American taxpayers account for approximately 21% of the applications for this tax exemption, they were the focus of 43% of the audits that were carried out in relation to the credit, The Associated Press indicated.
“We have taken swift initial steps to drastically reduce the number of such audits. We have also made changes to the selection criteria for these audits” said IRS Commissioner Daniel Werfel. Discriminatory audits, he said, “degrade confidence in our tax system.”
Joe Biden had pledged to carry out an increase in audits of the most important and wealthy corporations in the United States, the audit rate of millionaires decreased by more than 70% from 2010 to 2019. The rate of large corporations fell by more than 50%.
What should I do when the IRS audits me?
When you go through an IRS audit, it is important that you are ready and provide the necessary documentation to support your tax return, here we indicate in detail some of the documents that you may need to submit in an audit process
Original tax return: Submit a copy of the original tax return that is in the audit process.
Financial records: This may contain bank statements, records of your credit cards and canceled checks, such documents help to verify income and expenses already declared.
Tax Forms: If you have forms W-2, 1099 and some other tax forms that relate to your income, remember to have them on hand.
Documentation of deductions: If you are applying for deductions, such as medical expenses, charitable donations or mortgage interest, present the receipts and records that work for you as a support for these deductions.
Medical Records: If you are requesting medical expenses, have the medical records and related bills, at hand, because it is one of the documents that will be requested.
Investment-related documents: If you have investments, such as stocks or property, provide purchase and sale records, and any other documents that are relevant.
Correspondence with the IRS: If you have previously had communication with the IRS regarding this issue, specifically, please submit any related documents, letters, or notices.
Keep in mind that each audit may be different from another, and possibly the auditor will make the request for additional documents depending on your particular situation, the recommendation is always made to consult with a tax professional or a lawyer before the audit is performed so that you are sure to be well prepared.
