There area variety of reason tax returns are audited by the IRS. Like everything in life, there are main reason why things happen.
These are the chief reasons why tax returns are pulled for an audit by the IRS, enjoy
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. Depending on the dollar amount and other factors, the activity and other factors, IRS loves to audit corporations
• 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.1.4 million tax returns are audited in this fashion.
• 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.
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.