How are tax returns selected for audit? As an ex-IRS Agent, I am constantly asked this question. Tax returns are selected for audit for various reasons. The most common reason is based on a high DIF score. When you file your business tax return, you are requested to enter a NAICS code which categorizes your business (Doctor, Attorney, etc.) Your return is compared to other businesses with the same NAICS code. The more abnormal your return is, the higher DIF score you will receive and the more likely you are to be audited. The IRS also keeps statistics on preparers. If they believe a return preparer is questionable, they will often audit all of the clients to verify their suspicions. Some returns are randomly selected for audit regardless of the DIF score. Returns are also selected for audit based on information received from informants. A very small percentage of cases are actually selected for audit based on information received from informants. The IRS receives thousands of these letters every day from disgruntled employees, ex-spouses, and neighbors. Most of them are ignored. If there are related transactions between you and someone being audited, you could end up being audited too. Most of my cases as an IRS Agent were selected this way. In fact, this is how I developed multiple criminal cases. Returns are often screened again for audit potential by IRS Agents before they are forwarded to corresponding groups. Once the case is forwarded to the proper group, the IRS Agent or manager may decide that there is no audit potential or available resources to work the case. If this happens, it will be returned to the service center and you will never know that your return was selected for audit. There are many taxpayers who have been selected for audit multiple times but were never contacted for these reasons.
Posted on: Mon, 21 Oct 2013 01:17:11 +0000
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