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Law Professor: IRS Should Embrace Race Data to Promote Equity

Tim Shaw  

· 6 minute read

Tim Shaw  

· 6 minute read

Although the IRS has historically and purposefully maintained a policy of racial neutrality in its data collection, a proactive policymaking approach that takes into account potential consequences for underserved communities would help foster equitable tax administration, according to a legal professor.

Beginning his presentation February 24 at an all-day symposium hosted by the American Tax Policy Institute in Washington, D.C., Professor Leslie Book of the Villanova University Charles Widger School of Law stated that “the IRS has yet to fully acknowledge its role as one of the most important federal agencies in terms of delivering benefits,” which he believes is a conscious decision.

Book pointed to the IRS’ mission statement, wherein the agency does not identify itself as a social benefit provider. Its responsibilities as an administrator—and not just as the federal government’s tax collector—were spotlighted during the COVID-19 pandemic. Per a report from the Government Accountability Office (GAO), the IRS during the period 2020-2021 distributed $837.5 billion in total Economic Impact Payments, as well as $93.5 billion in advance child tax credit payments.

Yet, some scholars argue that the IRS’ lack of appetite for collecting racial and demographic information hinders its ability to make informed decisions that would better serve marginalized groups, especially those with low incomes and/or in certain areas of the country. The IRS by design does not request such identifying information because it wants to be ‘racially blind’—that is, to conduct fair treatment of all taxpayers under the law.

Focusing primarily on the IRS’ enforcement actions, George Washington Law School Associate Professor of Law Jeremy Bearer-Friend made the case in a paper, Colorblind Tax Enforcement, that the absence of publicly available data on IRS enforcement does not necessarily indicate a lack of racial disparity.

“As Jeremy explains, racial animus discrimination that exists in the non-tax context has had a direct impact on tax enforcement effects,” Book said during his presentation.

Bearer-Friend told Checkpoint that “the IRS should be tracking tax enforcement actions by race in order to identify potential racial disparities and also correct them,” which include referrals to DOJ for criminal investigation, civil penalty assessments, settlement amounts, and denial of innocent spouse relief. “The Federal Coordination and Compliance Section within DOJ’s Civil Rights Division could also assist the IRS with this review.”

Book suggested that demographic data can be helpful beyond enforcement and apply to tax administration more broadly. “While the tax system is increasingly central to people’s lives, tax administration is often highly removed and distant from those lives,” he explained. “[T]heir lived experiences is a fundamental frame of reference that I believe should drive tax administrators who should care about delivering equitable outcomes for all individuals.” He added that examples of communities that have been “often denied being treated in a fair manner” are African Americans, Latinos, indigenous Native Americans, those with disabilities, and taxpayers “adversely affected by persistent poverty.”

Citing the work of author and activist Ibram Kendi, Book said there can be no race-neutral policy in the tax system given the “unequal footing” of disadvantaged groups. Lack of access to healthcare or the internet are other measures the IRS should consider when drafting new policies, said Book. In general, Book called on the agency to weigh the following policy factors: 1) whether the policy promotes racial equity; 2) how the policy affects historically unfairly treated communities; and 3) if the policy perpetuates or exacerbates racial inequity.

“Stated differently, how can the IRS shift becoming a force for anti-racist policies and be part of progress for racial justice?” Book clarified.

He, alongside former National Taxpayer Advocate Nina Olson and Harvard legal professor T. Keith Fogg, argued in an Oklahoma Law Review article that the administrative burden on American taxpayers threatens taxpayer rights. The authors say that this burden largely falls on disadvantaged racial and ethnic groups, and proceed to illustrate a framework to better identify the tax system’s strain on the poor and underserved.

“If the IRS can meaningfully gauge the impact of tax administration policy choices on racial and ethnic groups, it should evaluate the impact of administrative burdens on those groups as part of its efforts to reduce structural barriers to people of color and other disadvantaged communities,” according to the article.

May 2022 GAO report delved into the effects of tax policies across demographics in the absence of reliable data. Because the IRS does not collect such data, the GAO recommended there be a lift on legal restrictions for interagency data sharing for the purpose of policy evaluation. “If tax data could be linked to households’ demographic data in a way that still protects the privacy and security of those data, policymakers and researchers would have better tools for consistently and systematically analyzing the relationship between tax policies and household demographics,” the GAO concluded after interviewing experts and reviewing relevant academic materials.

Mirroring some of the language on the GAO’s recommendation for Treasury to impute race and ethnicity on tax data, Treasury Assistant Secretary for Tax Policy Lily Batchelder said in her remarks at the American Bar Association’s 2023 Midyear Meeting that existing methods have been improved upon.

“Our long-term goal is to foster an economy that unleashes the economic potential of people of color and other historically marginalized communities, leading to greater financial security and more broadly shared prosperity for all,” said Batchelder. “Fairness in the tax code is essential to actualizing this vision.”

President Biden issued an executive order January 20, 2021, tasking federal agencies to look inward and find race equity gaps, and to take actions to help close those gaps. For more on the Treasury Department’s efforts in response to the order through the first half of 2022, see Treasury: Benefit Outreach, Debt Collection Practices Affect Equity (06/08/2022). In a follow-up mandate February 16, 2023, Biden set more specific guidelines for agencies to create race equity leadership teams to implement their respective strategies.

“Achieving racial equity and support for underserved communities is not a one-time project,” read the new executive order. “It must be a multi-generational commitment, and it must remain the responsibility of agencies across the Federal Government.”

Treasury also created late last year the Treasury Advisory Committee on Racial Equity, or TACRE. According to an FAQ, TACRE is a 25-member committee that will address several economic aspects with respect to racial equity, such as financial inclusion, capital access, housing stability, and federal government supplier diversity. TACRE is set to meet quarterly, and its first meeting was held December 6. The next meeting is scheduled for March 9, and details for attending in-person can be found in the January 27 edition of the Federal Register.

“Economic inequality is a drag on our economy as a whole,” said Treasury Secretary Janet Yellen to kickoff TACRE’s inaugural meeting. “I believe that investments in disadvantaged communities often result in higher relative returns on investment. And they can boost top-line growth by enabling us to tap all our resources.”


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