How Does the IRS Select People for Audit?

So the IRS has been processing tax returns and auditing people for a very very long time. It's very good at auditing people and understanding that the government has limited resources. It really focuses on the areas where it thinks it can get the biggest win. The biggest win translates to how much additional tax revenue can we raise through examination, so the IRS has developed a statistical body of data points and depending on the relationship that your return has to those data points dictates how likely you are to get audited. So what happens is a taxpayer will file a tax return and that tax return will get scored by two methods that the IRS uses to score returns. One is called the day of to score and one is called a UI dif or just dif stands for discriminate income function. So what the IRS is looking for when it scores returns based on a dif score is the IRS is looking at the pretense or error in the taxpayers return. So for example if it sees expenses that are being taken that are not in line with you through the profession or not in line with the level of income that's on the return or a couple of other factors, then that return will generally receive a high dif score and be subject to audit. A high dif score translates to we think, this return is of a higher propensity for error. When they do a UI dif score they're looking at the propensity the return has high levels of unreported income. So the IRS uses those two scores, they select people based on where they fall within a data pool and then they kind of go from there determining who gets audited eventually. This is all computer-based. Eventually this gets to a manual reviewer and there's a human being who looks through this and makes you see but the IRS uses statistics as much as possible to get a pool of returns that it feels are appropriate for audit and then it selects the quote-unquote low-hanging fruit: the ones that it thinks they can get the most adjustments out of.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law