Why am I being selected for an IRS audit?

Being selected for an audit doesn’t always mean there is a problem. ​Sometimes you may actually be due a refund after the audit or the IRS may accept your tax return as is.

​The IRS uses several different methods to select organizations and individuals for audits:

• Random selection and computer screening 
  
  Sometimes returns are selected based solely on a statistical formula. They compare your tax return against “norms” for similar returns. They developed these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information.
  
  
• Related examinations 
  
  The IRS may select your returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
  
  
• Potential participants in abusive tax avoidance transactions
  
  Some returns are selected based on information obtained by the IRS through efforts to identify promoters and participants of abusive tax avoidance transactions. Examples include information received from “John Doe” summonses issued to credit card companies and businesses and participant lists from promoters ordered by the courts to be turned over to the IRS.
  
  
• Computer Scoring
  
  Some returns are selected for examination on the basis of computer scoring. Computer programs give each return numeric “scores”.
  
  --- The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns.
  
  --- The Unreported Income DIF (UIDIF) score rates the return for the potential of unreported income.
  
  IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.
  
  
• Large Corporations
  
  The IRS examines many large corporate returns annually.
  
  
• Information Matching
  
  Some returns are examined because payer reports, such as Forms W-2 from employers or Form 1099 interest statements from banks, do not match the income reported on the tax return.
  
  
• Related Examinations
  
  Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for examination.
  
  

• Other
  
  Area offices may identify returns for examination in connection with local compliance projects. These projects require higher level management approval and deal with areas such as local compliance initiatives, return preparers or specific market segments.
  
  

Note: Filing an amended return does not affect the selection process of the original return. However, amended returns also go through a screening process and the amended return may be selected for audit. Additionally, a refund is not necessarily a trigger for an audit.

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Source: Internal Revenue Service Data Book, 2017
- Publication 55B - Washington, DC - March 2018

This report describes activities conducted by the Internal Revenue Service during Fiscal Year 2017 (October 1, 2016, through September 30, 2017).

The Internal Revenue Service (IRS) Data Book is published annually by the IRS and contains statistical tables and organizational information on a fiscal year basis. The report provides data on collecting the revenue, issuing refunds, enforcing the law, assisting the taxpayer, and the budget and workforce. You can view selected summary graphs, key statistics, and descriptions of the tables and the IRS functions they cover. ​

Once your organization has been selected, an experienced auditor will review the return. They may accept it; or if the auditor notes something questionable, they will identify the items noted and forward the return for assignment to an examining group.

The IRS enforces the tax law in a number of ways; the more common methods include correspondence (examination by mail) and field (face-to-face audit) examinations. This section provides information about examinations of most types of tax returns such as income tax, estate and gift tax, employment tax, and excise tax. Information is also provided about examinations of tax-exempt organizations.
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Does reviewing the selection process for an audit by the IRS a cause for concern? If so, one of the many services we provide for businesses is preparation of tax information for tax compliance and tax planning. Please contact Eric Moore here.