Wednesday, November 29, 2023
Emily Satterthwaite (Georgetown; Google Scholar), Beyond Audits: Investigating the Role of Race in Various Tax Enforcement Settings (JOTWELL) (reviewing Jeremy Bearer-Friend (George Washington; Google Scholar), Colorblind Tax Enforcement, 97 NYU L. Rev. 1 (2022)):
Following the January release of a groundbreaking study by Hadi Elzayn, Robin Fisher, Jacob Goldin, Thomas Hertz, Daniel E. Ho, Arun Ramesh, and Evelyn Smith and the resulting media, Congressional, and IRS attention, it is now well-known that Black taxpayers are audited at rates three to five times the rates of non-Black taxpayers. The audit study is a landmark both for its results (which contradict past IRS statements) and also for its novel methodology, which uses individually-estimated taxpayer race probabilities to obtain informative bounds on the racial audit rate disparity. In addition to illuminating problematic patterns in current IRS audit selection procedures, the study’s methodology offers promise for the future in investigating other race-based patterns in tax enforcement.
In what non-audit enforcement areas might such patterns arise? Here is where the prescient work of Jeremy Bearer-Friend (as cited in the audit study, P. 41) comes in, building on the work of other scholars working at the intersection of race and tax. In “Colorblind Tax Enforcement,” Bearer-Friend refutes on first principles the now-debunked claim that because the IRS does not collect race data, it cannot discriminate by race when enforcing tax laws. He points out that, for IRS agents, making inferences about the race of a taxpayer on the basis of the information provided on the return (names of taxpayer, spouse, and children, address including zip code, family structure, and occupation) is plausible and probable: “[e]ach of these datapoints can lead to inferences of racial identity in the mind of the relevant IRS personnel, with the combination of data points creating a stronger likelihood of inference” (P. 19). Moreover, at many points in the enforcement process there are telephonic or in-person conferences that allow for further racial inferences. ...
Bearer-Friend is clear that his review of the scope for racial bias in these tax enforcement settings “is not an assertion that such racial bias is already occurring at the IRS” (P. 47). The problem, rather, is that at the time that Bearer-Friend was writing, current data practices at the IRS inhibited such an inquiry. To address this, Bearer-Friend recommends exactly the kind of imputation techniques that both the audit study and a Treasury Department analysis of tax expenditures have since performed. Analyzing IRS enforcement procedures for possible racial bias is thus feasible (although it is far from costless, which is one more reason that IRS funding increases must be preserved). Bearer-Friend’s article gives us tremendously fruitful suggestions for where such analyses should start.