Joe Biden’s Treasury Secretary Janet Yellen has confirmed that the Internal Revenue Service (IRS) will not require race to be reported on tax returns. This statement was made in response to House Ways and Means Committee Chairman Rep. Jason Smith (R-MO), who asked whether the Biden administration’s executive order directing federal agencies to produce an annual “equity action plan” meant that the IRS would amend the way it makes audit decisions to be based on taxpayers’ race.
Yellen denied this was the case and emphasized that the administration considers fairness in tax administration to be of “utmost importance.”
YELLEN: "Algorithms…the IRS may be using are racially biased…much more likely to audit taxpayers of color."
REP. SMITH: "You'll never use race or gender in deciding audits?"
YELLEN: "Race is not available." pic.twitter.com/3EMVZuMBlS
— Daily Caller (@DailyCaller) March 10, 2023
Yellen pointed to a recent Stanford University study that found that Black taxpayers are audited by the IRS at least 2.9 times more often than non-Black taxpayers. The study suggested that this disparity is caused by the agency’s auditing algorithms that produce selection bias. Yellen noted that the IRS must become aware of potential discrepancies in its audit process and develop means to make the system fairer.
However, Yellen clarified that the agency does not consider race when deciding which returns to audit. She said the IRS does not collect racial data from taxpayers and would accordingly not be able to use race as a determinative factor in auditing decisions.
Yellen’s race and tax administration remarks came during a House Ways and Means Committee hearing on President Biden’s fiscal year 2024 budget request. Biden’s budget calls for increased taxes on wealthy Americans and cuts in energy subsidies for oil and gas companies as alleged ways to reduce the federal government’s massive spending deficits.
The Inflation Reduction Act, which Biden signed into law last August, includes $80 billion for the IRS to hire up to 87,000 new agents. However, some experts have claimed that the expanded IRS will primarily target small businesses in its quest for enhanced revenue production.
During the Obama administration, the IRS was criticized for allegedly targeting conservative groups like the Tea Party. The agency also faced scrutiny in 2021 after ProPublica received and published tax information on some of the wealthiest Americans, showing the “true tax rate” they allegedly paid. An investigation into the leak is ongoing.
Yellen’s comments come as additional lip service to the idea that the Biden administration is taking steps to ensure that the IRS’s audit process is fair and equitable. However, it remains to be seen whether the IRS will be able to effectively address these issues and ensure that all taxpayers are treated fairly.