IRS will ‘considerably’ reduce audits on low-income tax credit score, commissioner says

Only 2% of Americans incomes greater than $5 million a 12 months faced an audit in 2019, down from 16% in 2010, in response to a report from the Government Accountability Office.

The IRS in May mentioned that Black Americans are considerably more likely to face an audit, confirming earlier findings from economists from Stanford University, the University of Michigan, the U.S. Department of the Treasury and the University of Chicago.

Findings present the earned revenue tax credit score has contributed to this disparity and the IRS has been weighing coverage modifications to deal with the difficulty.

The IRS goals to curb correspondence audits for the earned revenue tax credit score by serving to taxpayers file extra correct returns upfront, which will “enhance fee accuracy whereas decreasing administrative burdens for the IRS and the tax filer,” in response to the letter.

However, consultants are nonetheless ready for particulars about how these coverage modifications will be carried out.

More than 26 million low- and middle-income taxpayers obtained the earned revenue tax credit score throughout tax 12 months 2019, in response to the National Taxpayer Advocate’s 2022 annual report to Congress. However, throughout fiscal 12 months 2020, over $16 billion of the credit score was improperly claimed, in response to the report.

The purpose for errors is the tax break’s complexity, which requires claimants to work and have a qualifying little one, in response to Janet Holtzblatt, a senior fellow on the Urban-Brookings Tax Policy Center.

“Defining care is a problem,” she mentioned.

For instance, a toddler can have a number of caretakers all year long and it may be troublesome to match the credit score with the suitable caretaker.