As a former IRS agent the number one question I am asked is, Why does IRS audit a tax return?
While there are variety of reasons the IRS audit tax returns the chief reason is because of the DIF score.
Every return next file goes through an audit and every return is rated/ranked by the Internal Revenue Service.
The chief reason your tax return is audited is because of the DIF.
The DIF process has already audited more tax returns than any other of the IRS processes.
So what is the DIF ? Discriminate Function (DIF) Discriminate Function (DIF)
It is a mathematical technique used to classify income tax returns as to Examination potential. Under this concept, formulas are developed based on available data and are programmed into the computer to classify returns by assigning weights to certain basic return characteristics.
These weights are added together to obtain a composite score for each return processed. This score is used to rank the returns in numerical sequence (highest to lowest). The higher the score, the higher the probability of significant tax change.
The highest scored returns are made available to Examination upon request.
The DIF-system involves computer classification to mathematically determine the Examination potential of returns, and manual screening to set the scope of examinations and to select needed workload.
Frequently Asked Questions
The IRS DIF score (Discriminant Information Function score) is a number the IRS assigns to every tax return to estimate its audit potential. It’s part of the IRS’s computerized system that flags returns that look unusual or have a higher chance of needing correction.
To put it simply, it’s the IRS’s way of spotting returns that might have errors. If you’re wondering, “What is this number and why does it matter?” that’s your IRS DIF score explained.
The IRS uses the DIF score as part of its main tool for choosing which tax returns to audit. Every return is processed through a computer system that assigns a score based on how different your return is from what’s considered “normal” for someone in your income bracket or job category.
Here’s how it works:
- The IRS audit selection criteria rank returns from highest to lowest DIF scores.
- The higher your score, the more likely your return is to be looked at.
- Returns with the top scores are passed to IRS examiners for further review.
This process is how many audits are triggered through the tax audit DIF score system.
No, the IRS does not share individual DIF scores with taxpayers. The formula behind it is confidential and not publicly available.
So, while your return is being scored in the background, you won’t know what your actual number is or where you rank. But knowing the factors affecting DIF score can help you understand how to file more accurately.
Several things can raise your DIF score and catch the IRS’s attention:
- Reporting income that doesn’t match what the IRS already knows (like W-2s or 1099s).
- Large deductions that seem high for your income level.
- Claiming losses on a hobby or side business.
- Filing self-employed income with little or no documentation.
- Unusual or round-number expenses.
These are just a few factors affecting DIF score that can make your return look riskier in the system.
No, not every high DIF score leads to an audit. The IRS has limited resources and doesn’t audit every flagged return.
That said, a high DIF score does mean your return is more likely to be reviewed manually. If something stands out, an examiner may choose to open an audit. So while not automatic, a high tax audit DIF score definitely increases the chances.
Here are a few practical tips to reduce audit risk:
- Report all income accurately.
- Double-check deductions and credits.
- Avoid rounding numbers unnecessarily.
- Keep good records and receipts.
- Be cautious when claiming business expenses or losses.
