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To: Janis Bowdler, Counselor to the Secretary (Racial Equity) and Snider Page, Acting 

Chief, Office of Diversity, Equity, and Inclusion

Fr: Mayor Michael Nutter, Chair; and Felicia Wong, Vice-Chair, TACRE

Re: TACRE Data and Research Subcommittee Recommendations

Dt: July 3, 2023

Please find below three recommendations from the TACRE Data and Research Subcommittee. 

All TACRE members have had the opportunity to review and comment on these, and as such 

these are ready for your inclusion in any communications to Secretary Yellen.

Please let us know if you have any questions. Thank you for the opportunity to serve.

Recommendation #1: Addressing the Issue of Racial Disparities in Audits

Recent research has highlighted disparities in audit rates between Black and non-Black 

taxpayers (with particularly large disparities among those claiming the EITC) that are not easily 

explained by differences in tax circumstances. As a result, the Committee makes several 

recommendations.

We recommend that Treasury “develop its in-house analytical capacity in support of vulnerable 

taxpayers” (Jan 11, 2023 Briefing Memorandum to Members of TACRE) by prioritizing 

investments in tax equity analysis in the following offices: (i) Treasury’s Office of Tax Analysis 

(OTA); (ii) IRS Statistics of Income (SOI); and (iii) IRS’s Research, Applied Analytics and Statistics 

Division (RAAS). This will better enable the Administration to fairly enforce our tax laws. 

In order to provide transparency, continual updates on the sources of these disparities, and 

whether current policy efforts are being successful in eliminating this disparity, the Committee 

recommends that the Secretary request an annual report from IRS providing updated numbers 

on racial disparities in audit rates in order to increase transparency. Such reports should 

include:

● An overall estimate of audit rates by racial and ethnic group (including all primary 

Census classification of race and Hispanic ethnicity) not limited to the EITC-eligible 

population.

● Estimates of the racial differences in audit rates within sub-groups which are affected by 

different pieces of salient tax law (such as EITC claimants and non-EITC claimants, 

Schedule C filers and non-Schedule C filers, etc...). 

● A publicly released data set of audit rate disparities broken down by geographic unit, 

including state and (where population sizes allow) county and ZIP Code (“geographic 

audit report”) to be provided within 90 days. 

● Whatever more disaggregated numbers the IRS Commissioner believes would clarify the 

sources of these disparities or the success of policy efforts to reduce them. For 

instance, if IRS believes that increased funding for VITA sites in under-resourced areas 
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would help reduce disparities through increased access to high-quality tax preparation 

support, then the report could provide statistics for filers in areas in which VITA funding 

is increasing.

● To the extent that clarifying the sources of the racial disparities in audits rates presents 

an unacceptable risk of public information release about the IRS audit process, the 

Commissioner should also brief the Secretary on the precise aspects of the audit 

algorithm that generate the racial disparities in audit rates among EITC filers reported in 

Elzayn et al.

● As the IRS reviews its algorithm in accordance with Commissioner Werfel’s letter of May 

15, 2023, we recommend that the IRS assess how to focus enforcement efforts in ways 

that will contribute most to closing the tax gap, ie reducing the total dollars of taxes that 

are unpaid.

This annual report is similar to those already produced on audit rates and feasible with data 

currently available to IRS researchers. It is also consistent with the IRS’s Strategic Operating 

Plan: Objective 3, Initiative 3.7: Promote fairness in enforcement activities. Although IRS does 

not currently provide such statistics on racial disparities in audit rates, it does provide data on 

audit rates by income and EITC filing status. IRS similarly already provides information at 

disaggregated levels of geography in the County-to-County migration patterns tables. The IRS 

does not collect information on an individual tax filer’s race or ethnicity, but the above report 

would be feasible using either an imputation of race and ethnicity based on information that 

IRS does collect or via merging audit data with information on race and ethnicity from Census. 

The recent collaboration between Treasury, IRS, and Census which produced an analysis of the 

economic impact payments in Clark et al. could be used as a model. 

IRS Commissioner Werfel stated in his May 15 letter: “I will stay laser-focused on this to ensure 

that we identify and implement changes prior to next tax filing season.” Therefore, the 

Committee recommends that the first such annual report be due to the Secretary no later than 

March 2024.

The Committee further recommends that the Secretary request that IRS Commissioner Werfel 

attend the September TACRE meeting and provide an update since his May 15 letter to 

members of the Senate Finance Committee, including a progress report on the geographic audit 

report, and an update on the Joint Statistical Research Program proposals received (see 

Recommendation #2).
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Recommendation #2: Increase Independent Research into Racial Disparities in Tax 

Administration

IRS has not historically focused on issues of racial equity in its publication of data and analysis. 

Although we are encouraged by the Commissioner’s recent focus on these issues, and we are 

hopeful that IRS will increase research and reporting on these issues going forward (pursuant in 

part to Recommendation #1), IRS reports alone will never substitute for the value of 

independent research into racial disparities in our tax system. Two recent independent 

research (i.e., without IRS sponsorship or current IRS staff as coauthors) papers studying racial 

disparities in audit rates (Elzayn et al. 2023) and tax expenditure usage (Cronin et al. 2023) both 

highlight the importance of such research.

The Committee recommends that the Secretary increase the volume of independent research 

on this important issue. Such steps should include (though not be limited to):

● Continue to prioritize research on racial disparities within the Office of Tax Analysis. 

Among the two papers mentioned above, two of seven coauthors of Elzayn et al. and all 

three coauthors of Cronin et al are OTA researchers. This work is outstanding and 

should be further encouraged.

● Prioritize research on these issues in the upcoming IRS Call for Proposals in the Joint 

Statistical Research Program (JSRP). IRS should additionally conduct outreach to 

scholars with expertise in this area to ensure that they are aware of this research 

opportunity and have an opportunity to apply. The call for proposals is June 1-30, 2023, 

and therefore time is of the essence.

● Where tax law permits, increase availability of Title 26 data at Census to permit broader 

study of racial disparities in tax administration using merged IRS and Census data (since 

race and ethnicity of individual tax filers can, in most cases, be directly observed with 

the Census secure data environment).
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Recommendation #3: Equalize Reporting on Tax Non-Compliance Between Refundable Credits 

and Underpayment of Taxes

Under the current interpretation of the Payment Integrity Information Act (PIIA) of 2019, IRS 

must report more frequently and in more detail on tax non-compliance in the use of refundable 

tax credits than on other aspects of tax non-compliance (e.g., underpayment of taxes by 

Schedule C filers). Such imbalanced reporting draws attention away from underpayment of 

taxes by high-income filers and towards non-compliance of low-income filers, despite the 

former contributing substantially more to the tax gap than the latter.

Because more information is helpful to draw public attention to monitor IRS activities, we 

recommend that the Secretary increase reporting requirements for IRS on all sources of tax 

non-compliance to match those currently required by the PIIA for the EITC and other 

refundable tax credits. Alternatively, the Secretary could request that OMB remove the EITC 

and other refundable tax credits from the PIIA’s reporting regime.