Business

Collaboration Between Stanford and the Department of the Treasury: Black Taxpayers Are Targeted for Audit More Than Others

According to Stanford RegLab, Black taxpayers receive IRS audit notices at least 2.9 times more frequently than non-Black taxpayers and possibly as much as 4.7 times more often. The team’s research showed that a set of internal IRS algorithms causes racial differences in audit selection. Goldin compared them to the recipe for Coca-Cola: “It’s completely secret.”

Published

3 years ago

February 25, 2023

Oakland Post

To better understand this audit selection bias, the research team modeled the racial impact that various alternative audit selection policies might have. The result showed how the IRS could change its secret algorithm to make it less unfair to people of different races.

By Stacy M. Brown
NNPA Newswire Senior

According to Stanford RegLab, Black taxpayers receive IRS audit notices at least 2.9 times more frequently than non-Black taxpayers and possibly as much as 4.7 times more often.

The new study included research by Daniel E. Ho, the William Benjamin Scott and Luna M. Scott Professor of Law at Stanford Law School, faculty director of the Stanford RegLab, a senior fellow at the Stanford Institute for Economic Policy Research, Hadi Elzayn, a researcher at the Stanford RegLab, Evelyn Smith, Ph.D. candidate at the University of Michigan, and Arun Ramesh, a pre-doctoral fellow at the University of Chicago; Jacob Goldin, a professor of tax law at the University of Chicago; and economists in the U.S. Department of Treasury’s Office of Tax Analysis.

The researchers concluded that the disparity “is unlikely to be intentional on the part of IRS staff.”

The team’s research showed that a set of internal IRS algorithms causes racial differences in audit selection. Goldin compared them to the recipe for Coca-Cola: “It’s completely secret.”

To better understand this audit selection bias, the research team modeled the racial impact that various alternative audit selection policies might have.

The result showed how the IRS could change its secret algorithm to make it less unfair to people of different races.

“The IRS should drill down to understand and modify its existing audit selection methods to mitigate the disparity we’ve documented,” Ho said.

“And we’ve shown they can do that without sacrificing tax revenue.”

Although there have been long-standing questions about whether the IRS uses its audit powers somewhat, Ho said it was challenging to study because tax returns are private.

The IRS’s approach to audit decisions was confidential.

That changed when, on his first day in office, President Joe Biden signed Executive Order 13985. This order requires all federal agencies to examine how their programs affect racial and ethnic equity.

To apply that order to the IRS tax return audit program, economists at the Treasury Department worked with the Stanford RegLab team to analyze more than 148 million tax returns and about 780,000 tax returns for 2014. The RegLab team used anonymous data to do the analysis.

Even with all that information, the research team found that tax returns do not ask for a person’s race or ethnicity.

So, the team adapted and improved on a state-of-the-art approach that uses first names, last names, and geography (U.S. Census block groups) to predict the probability that a person identifies as Black.

And they confirmed their racial identification results using a North Carolina sample of voter registration records. In that state, until recently, when people registered to vote, they had to check a box for race and ethnicity.

After finding that Black taxpayers were 2.9 to 4.7 times more likely to be audited than non-Black taxpayers, the team looked at why this might be the case.

They suspected that the problem lay with an IRS algorithm’s use of the Dependent Database, which flags a potential problem and generates an audit letter to the taxpayer.

That instinct proved correct in that most racial differences were found in so-called “correspondence” audits. These audits are done by mail rather than in person.

The team also found that the IRS audits people more often who claim the Earned Income Tax Credit (EITC). The EITC helps low- and moderate-income people.

But claiming the EITC only explains a small percentage of the observed racial disparity.

The largest source of disparity occurs among EITC claimants. Indeed, Black taxpayers accounted for 21% of EITC claims but were the focus of 43% of EITC audits.

The racial disparity in audit rates persists regardless of whether EITC claimants are male or female, married or unmarried, raising children, or childless.

But it is most extreme for single male taxpayers claiming dependents (7.73% for Black claimants; 3.46% for non-Black claimants) and for single male taxpayers who did not claim dependents (5.66% for Black; 2% for non-Black).

Perhaps the most striking statistic is this: A single Black man with dependents who claims the EITC is nearly 20 times as likely to be audited as a non-Black jointly filing (married) taxpayer claiming the EITC.

Although the team does not know precisely what algorithm the IRS uses to choose audits, they thought of several possible reasons for high audit rates.

First, they tried an “Oracle” approach. They used a dataset called the National Research Project (NRP).

Because each tax return in this dataset was subjected to a line-by-line audit, the amount of underreported tax liability is known.

So, the researchers looked at what would happen if the IRS selected taxpayers based on the known amount of underreported tax in the NRP dataset.

The result: The racial difference in audit selection flips.

The IRS would audit more non-Black taxpayers than Black taxpayers to catch the most underreported income tax.

The team also used the NRP dataset to train a model to predict the likelihood that a taxpayer has underreported income and the magnitude of a taxpayer’s underreporting for the entire 2014 dataset.

They found that an approach focused just on the likelihood that there’s underreporting of at least $100 would result in auditing more Black taxpayers (as was observed).

By contrast, focusing on the magnitude of underreporting (the amount of money unpaid by a taxpayer) would yield a result much closer to the oracle: More non-Black taxpayers would be audited than Black.

“The choice to focus on whether there is underreporting, as opposed to the magnitude of underreporting, is connected to broader structural sources of economic inequality and racial justice,” Smith said.

Because far more Black taxpayers have lower income, they have less opportunity to underreport substantial amounts of income, the researchers concluded.

By contrast, Smith said, “focusing audits on the amount of underreported income will disproportionately end up focusing on higher income individuals who are less likely to be Black taxpayers.”

Finally, the team wondered if the racial disparity in audits springs from IRS and congressional concerns about refundable tax credits, including the EITC and several others.

When someone claims one of these social security tax credits, they receive a refund even if they did not pay any taxes.

And some in government think it’s more important to avoid paying money to someone who claims it inappropriately than to collect all the tax dollars due from someone engaged in some other form of tax evasion.

To test the hypothesis that this approach would have a disparate impact on Black taxpayers, the team examined what would happen if the IRS focused audits specifically on the underreporting due to over-claiming of refundable tax credits (the EITC as well as two others) rather than total underreporting.

Their findings: This policy would result in Black taxpayers being audited at rates like what the team observed in the 2014 data.

Seventy percent of IRS audits happen through the mail, and 50% involve EITC claimants.

The team found that correspondence audits of EITC claimants are easy to trigger compared to labor-intensive field audits, cost very little, and require minimal effort by IRS personnel.

Unfortunately, the burden of correspondence audits on EITC claimants is more likely to fall on lower-income individuals, whose tax returns are less complex and less likely to lead to litigation, according to a recent study by the same research team.

In their new work, the team found that additional aspects of the IRS audit selection process have a racially disparate impact in the United States.

For example, even among correspondence audits of EITC claimants, the IRS devotes fewer resources to auditing EITC returns with business income.

The team concluded suggested that it’s because it would be more expensive to audit EITC returns with business income (about $385 per audit compared to $29 per audit for EITC claimants with no business income), Elzayn said.

And the team found this cost-saving measure has a disparate impact on Black taxpayers, who make up only 10% of EITC claimants reporting business income but 20% of EITC claimants who don’t report business income.

Yet even if IRS resource limits explain some of the racial disparities the team observed, they don’t explain all of them.

“Even holding fixed how many audits are devoted to EITC claimants who report business income, we still observe racial disparities,” Elzayn said.

The study’s authors have not made any formal recommendations for making the IRS audit selection algorithm more just.

Instead, they have written about the possible effects of alternative policies. This allows the IRS to reduce the racial impact of its system of choosing auditors.

These include predicting and focusing on the magnitude of taxpayers’ underreported income rather than just the likelihood of it; using IRS resources to audit more complex returns rather than focusing only on the simpler ones that are cheaper to audit; and viewing dollars as equal whether they are to be paid in refundable credits or received in taxes.

Before Biden signed the Racial Justice Executive Order that engendered this research project, the IRS needed more impetus and the ability to do that.

Now that they know the equity implications of how they select audits, Ho hopes they will tweak their confidential audit selection algorithm.

“Racial disparities in income are well known, and what the IRS chooses to focus on has big implications for whether audits complement, or undercut, a progressive tax system,” Ho said.

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V&C Foods: How a Bay Area Distributor Built Leadership Across Three Generations

Succession planning works when businesses invest in developing leaders before they’re needed. Victor and Judy did this with Steven. Steven is now doing it with Adam. Each transfer happened because someone took years to teach, to trust gradually and let the next generation earn their place.

Published

6 days ago

June 17, 2026

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By JPMorganChase

In 1945 in San Francisco, Victor and Charlotte Cortesi started V&C Foods with fresh eggs and a distributor’s vision. What makes the business distinctive isn’t just that it endured. It’s how succession actually happened. When Victor passed, his daughter Judy inherited the business and made a remarkable choice: she recognized that Steven Herrera, who’d spent years as a route driver being mentored by Victor, was ready to lead. She sold the business to Steven, ensuring the values and relationships that defined V&C would continue into its next chapter. Now Steven is mentoring his son Adam in the same way Victor developed him—teaching him operations, relationships, and what it means to lead through experience and responsibility.

V&C’s story reflects a broader truth about succession planning: long-term continuity often depends on intentionally developing the next generation of leadership, whether within a family or beyond it.

From Mentorship to Legacy

When Steven first arrived at V&C as a route driver, he was hungry to learn. Victor saw potential and invested in it. Over the years, Steven moved through sales, distribution, and operations—not just learning how the business worked but understanding why it mattered. By the time Steven purchased the business, he was a leader who’d earned his place through partnership and decades of trust.

Steven arrived at the helm with deep knowledge of V&C’s operations and a clear sense of how to serve the Bay Area’s evolving restaurant industry. He understood the Cortesi family’s core principle: reliability and quality matter more than anything else. Under his leadership—and the support of his wife Liz, and his children Victoria and Adam—V&C expanded thoughtfully by building on those foundations rather than abandoning them.

“We want to be the vendor customers don’t have to worry about,” Steven said. “And Victor always preached about clear communication—sometimes trucks are late, but he always kept customers informed. I drill those principles into my son now. We don’t want to leave any customer hanging. That’s the mantra around here.”

Deliberate Development

According to recent Chase research, 54% of San Francisco small business owners expect to retire within the next decade. In a city where one in seven businesses have been operating for 20 years or more, ownership transitions will shape continuity in local commerce and community life—making proactive succession planning all the more essential.

V&C planned deliberately. The Cortesi family brought Steven in early and developed him through real responsibility. When Steven took the helm and began scaling operations, he had the continuity and clarity needed to grow. Now he’s creating the same culture with Adam—one where the next generation understands expectations and has the tools to lead.

“I had a lifetime of familiarity with the business. I even worked in high school and college during the summers, and my dad taught me how to drive one of the trucks when I was about 18,” Adam said. “So I’ve done every part of the job, just like my dad, and I think that’s helped me.”

For roughly two decades, V&C has partnered with Chase. When Steven took over and began scaling operations, having access to financial tools and a banking partner aligned with his strategy made navigating growth and transition clearer. Chase provided the guidance that supported each phase of the business’s evolution—from Victor’s leadership to Steven’s expansion to today’s preparation for Adam.

“V&C Foods shows what enduring leadership really looks like—developing people over time, creating clear expectations, and planning for transition before it’s urgent. We’ve been proud to support Steven and the team with the tools and guidance to navigate growth, stay reliable for their customers, and prepare the next generation to step in with confidence,” said Gary Li, Business Relationship Manager, Chase Business Banking.

The Pattern That Lasts

That’s what makes V&C’s story distinctive and what makes it transferable. Succession doesn’t require biological heirs alone. It requires clarity about what you’re building and the discipline to develop people who can steward it, even when that means passing it outside the family. Victor and his daughter, Judy, mentored Steven for years. Judy worked alongside him for many more before trusting him with the business. Steven is doing the same with Adam. But bringing someone along that way—investing years in their growth, then having the financial clarity to pass the reins—requires more than good intentions.

Chase for Business can help guide that work. Visit chase.com/NationalTreasures or speak with a Chase Business advisor to learn more about succession planning resources and how to build the clarity a business needs to thrive across generations.

This article is for Informational/Educational Purposes Only: The opinions expressed in this article may differ from the official policy or position of (or endorsement by) JPMorgan Chase & Co. or its affiliates. Opinions and strategies described may not be appropriate for everyone, and are not intended as specific advice/recommendations for any individual or business. The material is not intended to provide legal, tax, or financial advice or to indicate the availability or suitability of any JPMorgan Chase Bank, N.A. product or service. You should carefully consider your needs and objectives before making any decisions, and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results. JPMorgan Chase & Co. and its affiliates are not responsible for, and do not provide or endorse third party products, services or other content.

JPMorgan Chase Bank, N.A. Member FDIC.

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Sale of Coliseum to African American Developers Moves Toward Completion

The deal includes the sale of the Oakland Arena to an unidentified third-party buyer for no less than $100 million, which Bobbitt said was one of the most important aspects of the site’s future redevelopment.

Published

7 days ago

June 16, 2026

bpusa-syndication

The deal includes the sale of the Oakland Arena to an unidentified third-party buyer for no less than $100 million, which Bobbitt said was one of the most important aspects of the site’s future redevelopment.

‘This is on the precipice of actually occurring,’ said Ray Bobbitt, buyers’ representative

By Post Staff

After many months of complex negotiations, the Oakland Coliseum development deal is finally nearing an agreement that will open the way for new owners – the African Americans Sports and Entertainment Group (AASEG) – to revitalize the sports complex and the Hegenberger Corridor in East Oakland.

On May 28, the Alameda County Board of Supervisors unanimously approved a non-binding agreement to dispose of the County’s portion of the complex for $115 million in a deal with AASEG, with a closing date set for June 30.

“People are seeing that this is on the precipice of actually occurring,” said Ray Bobbitt, founder of the AASEG and an East Oakland native. “People feel that this needs to happen for Oakland, for East Oakland in particular,” Bobbitt said, as reported in the East Bay Times.

The agreement would transfer ownership of the 112-acre Coliseum complex property, which was owned 50-50 by Alameda County and the City of Oakland, to Oakland Acquisition Company, which is AASEG’s real estate wing.

The County’s approval marks an important step in the sale of the property, even though concerns about environmental liability remain. Under the terms of the non-binding agreement, the county will pay $115 million to Coliseum Way Partners, the corporate entity of the Oakland Athletics that had previously purchased the county’s half of the property for $85 million.

AASEG will then pay $115 million to the County in three annual payments, with 5% annual interest paid on any outstanding balance, according to the term sheet.

AASEG already negotiated a purchase of the city’s half of the property for $125 million in 2025, awaiting the sale of the county’s half.

A strong supporter of the sale, Supervisor Nate Miley said he was not “breaking out the champagne” until the sale was final. This is not perfect, but it is good.

“It’s good because the County ends up with more money,” Miley continued. “It’s good because an African American team takes ownership of the property, and they’ve got a lot of potential in terms of what they want to do with the property.”

A remaining disagreement between Alameda County and the AASEG involves environmental concerns.

AASEG wanted a “carve-out” for environmental concerns so that it would not face liability for the release of groundwater into San Francisco Bay without a permit. Obtaining a permit could be time-consuming and expensive, requiring the need for consultants, studies, and an oversight process by the San Francisco Bay Regional Water Quality Control Board.

County supervisors unanimously supported the non-binding agreement without the carve-out, though Bobbitt said delaying or excluding the carve-out creates timing risks for the project.

“The motion is to accept the terms as presented, excluding the carve-out,” Board of Supervisors President David Haubert said. “Noting that it’s a non-binding term sheet and terms can always be discussed going forward. It’s been pointed out that that could affect the deal, timing, which we’ve been at this for nine years, but what’s a little more time?”

“The arena represents an anchor of the site,” said Babbitt. “This arena … has become a pop culture mecca, and the opportunity to enhance that and expand that is critical to the overall process.”

Speaking at the Board of Supervisors meeting, Miley explained the County’s reasoning behind some of the complex negotiations. He asked interim County Counsel Andrea Weddle:

“In layman’s term’s who’s on the hook for the environmental (cleanup)” under the current deal with the Oakland A’s?

“When the county with a former board entered in the deal with the (A’s), we took on all of the environmental obligations,” Miley said. “Since then, we’ve learned a lot more about the environmental conditions of the Coliseum.”

“If we do a deal with Coliseum Way Partners (the A’s), we remain on the hook,” she said. “If we do a deal as we’ve currently structured with OAC (AASEG), we have eliminated some or hopefully all (or) as much as we can of that liability and aligned our deal with the terms of the city.”

Bobbitt, despite his concerns, supported the nonbinding agreement. He said the public has waited nearly a decade to come to this point.

“The community support has been overwhelming,” he said. “We’ve used a lot of P-words: patience, perseverance, persistence. And we’ve just had to do it, and we understand how complex this has been.”