My name is Mike Sullivan. I’m a former IRS agent. I’ve worked at the IRS for over a decade, and the number one question I’m asked is: Why am I audited?
The main reason you’re audited comes down to two things: either you took a lot of credits you weren’t supposed to, or your DIF score flagged your return. DIF stands for Discriminatory Index Function score.
The IRS has national averages for income, expenses, dependents, and other financial factors. When your tax return is processed, every line item is keyed in, and the IRS runs algorithms to identify discrepancies.
If certain numbers on your return fall outside the norm, it raises a red flag. For example, if your reported interest income is significantly higher than what someone with your income level would typically have, the DIF score will highlight that inconsistency.
The IRS uses these algorithms on every line item to determine which returns are worth closer examination. If your numbers don’t align with national or regional norms, your return may be flagged for review.
In many cases, the IRS can send an audit case directly to the field, while in other cases, agents will manually review the return to see if it appears out of balance.
An experienced tax professional can often predict whether a return is likely to be audited just by reviewing it. If you have a high loss on a Schedule C, for example, the IRS may flag it.
They’re looking for returns that don’t make sense. In every part of the country, people must live on a certain amount of money based on their location.
If your reported income doesn’t match what’s typical for your area, that could also trigger an audit.
The biggest indicator, however, is the DIF score. If your income, expenses, and deductions are significantly different from what’s expected, your return is more likely to be flagged.