IRS Audit of Tax Returns
Tax returns are selected for audit based on the following criteria:
1) High DIF Score – An IRS numeric score (“DIF Score”) is assigned to taxpayers (by a computer program called the Discriminant Income Function). A high DIF Score portends a tax audit.
2) Third Party Information Reporting – Third party information, (e.g., Forms 1099, W-2), does not match tax return information.
3) Third Party Sources – Tax returns audited based on third party source information on inaccurate tax filings, non- compliance with tax laws. Third party sources include: media, public records or informants.
High Risk Tax Audit Targets
Your chances of being audited depend on:
1) What type of income you report.
2) The amount of income your report.
3) The type of business you’re in.
4) The tax deductions you report.
5) Your past history with the IRS.