Michael Sullivan, Former IRS Agent, Expert IRS Tax Audit Defense

Sullivan says,”Falling out of the National Average Guidelines in the areas like Charitable Contributions, Casualty Losses, Home Office, and Travel & Entertainment will affect the tax return’s DIF Score.”

US Taxpayers have always wondered how and why they were selected for an IRS Tax Audit.

The IRS audits over 1.3 million tax returns annually and taxpayers are fearful of being audited. The answer may seem overly simple, but most people do not have knowledge of the audit process.


Each tax return is issued a DIF Score (Discriminatory Index Function).

According to the IRS, a DIF Score “is a mathematical technique used to score income tax returns for examination potential.” This technique establishes the National Average Guidelines. Generally, if a DIF score is above the national average, then the risk of an audit escalates. The highest scoring tax returns are then forwarded to an IRS Examiner for further review.

So what triggers a high DIF Score? Sullivan says,”Falling out of the National Average Guidelines in the areas of Charitable Contributions, Casualty Losses, Home Office, and Travel & Entertainment will affect the tax return’s DIF Score.

Other audit triggers are unfiled tax returns and failure to file the FBAR (Foreign Bank and Financial Account) Form. “

An IRS computer operator punches in on every tax return certain line items such as income, dependence, exemptions, business deductions and available tax credits. When you fall in the norms of ratios from income verses  you will never have a problem. Everything is based on what the normal or average taxpayer does on their tax return.

But every time you get out of the range, another flag goes up, jacking up your  numerical score that IRS sets for audit purposes.

Kinda think of it as a credit score process every time you don’t pay a bill you trigger a lower score. Every time you fall out of a range that is a norm for the average taxpayer, you drive your DIF score up.

Since the Internal Revenue Service generates a great deal of income for the general revenue of the US and the rate of return on audits are high,  you become an easy target for IRS.

What is absolutely mind-boggling to me is, even though the IRS makes billions and billions and billions of dollars from IRS audits, they do fail to put money in the budget to create new audit jobs.

Audits now are at an all-time low.

Also keep in mind there are generally three types of audits.

There is the matching audit that the service center conducts based on W-2s and 1099s that did not show up on your tax return. Those are easy targets for IRS and that’s just simply called as I said before the matching program. Next, you can get a letter from office audit that a auditor in your local IRS office wants to look at your return. Those are usually low dollar and simple tax audits. The next is a larger revenue agent audit that’s conduct higher dollars businesses or corporations.

To arrive at the DIF score for each tax return, the IRS computer identifies returns by assigning weights and certain basic tax return characteristics. These weights are added together to obtain a systemic composite score for all tax returns. That score is used to rank all returns into numerical sequence. The highest scores are then manually reviewed by IRS Agents at the Service Centers to determine the merit and worthiness of a Tax Audit.

Sullivan goes on to say, “Since each return is manually reviewed, if you have an unusually high deduction, attach a copy of the bill, receipt and an explanation to the return. Those extra steps will probably prevent that tax return from the dreaded IRS Tax Audit.”

The number of audits performed annually is also determined by the IRS Annual Budget and Agent availability, region by region. According to the 2019 Proposed Budget, the IRS has increased appropriations again to increase resources for the Enforcement Division. This includes investigations, examinations and collections.

If are an in need of assistance for an upcoming IRS audit, please contact the Tax Resolution Specialists at Mike@sullivan4irsmatters.com