Treasury Secretary Janet Yellen told lawmakers on Friday there are no plans to require race be reported on tax returns.
"IRS doesn't know an individuals race, and we are certainly not proposing that race be reported on tax returns," Yellen said. "However, the IRS does need to be careful to ensure that there is fairness in tax administration."
Her remarks on race came in response to a question from House Ways and Means Committee Chairman Rep. Jason Smith, R-Mo., who asked about President Biden's Feb. 16 executive order directing federal agencies to produce an annual "equity action plan."
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Smith wanted to know whether Biden's order to "prevent and remedy discrimination" means the IRS is planning to change its process "to make audit decisions based on taxpayers' race."
Yellen denied this was the case. The Treasury secretary pointed to studies that have shown algorithms used by the IRS may be racially biased and said it was important for the IRS to become aware of potential disparities in its audit process and develop means to make the system more fair.
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Earlier this year, Stanford University published a study that found Black taxpayers receive IRS audit notices at least 2.9 times more often than non-Black taxpayers. Researchers suggested this disparity was caused by internal IRS algorithms that produce selection bias and suggested ways by which the IRS could adjust its algorithms to reduce disparate impacts.
"The IRS does need to be careful to ensure that there is fairness in tax administration," Yellen said. "And when studies like some that have been recently published suggest that algorithms that the IRS may be using are racially biased — in the sense they are much more likely to audit for people of color rather than others with exactly similar circumstances — it's important for the IRS to become aware of that and to make sure that the procedures that they use are fair."
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"But that certainly does not mean looking at race and deciding whom to audit," she added.
Yellen also noted that the IRS does not collect racial data from taxpayers and would not be able to use race as a determinative factor in deciding who to audit in the first place.
Yellen was called to testify before the House Ways and Means Committee on Friday after Biden released his 2024 budget proposal the day before. The president's budget calls for increased taxes on wealthy Americans and cuts in energy subsidies for oil and gas companies to cut the deficit.
