1- Computer and classifiers:
The IRS computer is to blame for 75% of all audit. Tax return date is sent to the
IRS National Computer Center where it is analyzed by a computer program
called the Discriminate Function. Each tax return is given " DIF " score- the
higher the DIF score, the more audit potential the return has.
2- Other Reason for audit:
a) IRS special Target:
Every year , the IRS decides that certain occupations need special scrutiny.
Past favorites have included doctors, waitperson, and airline pilots.
Also targeted are people working for or running cash businesses..
b) Market Segment specialization program
The IRS is zeroing in on 31 different types of workers, including truckers,
attorneys, morticians, gas station, owners auto dealers, insurance agency
owners, telemarketers and check cashing service owners..
c) Prior audits:
Previous IRS audits often beget new ones. If you were audited and IRS made
large adjustments, you have a higher chance than most of hearing from the
IRS in the future- although it is not certainty...
d) Criminal activity:
If you are charged with a crime involving large cash transactions, such as
drug trafficking, expect an IRS audit, if not a criminal tax investigation. Tax
code requires that all income , from sources legal or illegal, be reported.
E) Amended returns and refund claims:
You may file an amended tax return at any time within three years of the
date the original tax return was due and filed. The audit likelihood for
amended returns claiming refund is fairly high.
F) Information's Tips:
EX-Spouses, disgruntled business associates, former employees and law
enforcement agencies can all report you to the IRS.
G) Random selection:
The IRS selects about 50000 individual taxpayers at random every three
years for a taxpayer compliance measurement program (TCMP) audit.
TCMP audits are excruciating line-by-line examinations of a tax return.
3- Types of Audits:
G) Random selection:
(a) Office (b) Field (c) Correspondence