Red flags that increase your chance of being audited by the IRS.
Article by Kay Bell, contributing tax editor for Bankrate.com
April 9, 2015
It is the most dreaded letter a taxpayer can receive. You've just joined an elite club, one whose initiation ritual is an IRS audit. Unfortunately, you can't refuse membership — and the dues could be astronomical. Restructure and Reform Act – 1998 (PDF)
Focus on richer taxpayers
The number of audits nowadays remains low. In fiscal year 2013, the IRS audited 1.4 million people. That's 1 percent of returns filed for tax year 2012 and the fewest number of audits in more than five years. Even better news is that most of us aren't the target of IRS examiners. The tax man has been focusing on the rich. Read about your odds for an audit. (PDF)
What's the DIF?
In addition to a filer's overall income, other figures also get auditors' attention.
The IRS says there are several ways a return can be selected for audit and the first is via the agency's computer-scoring system known as Discriminant Information Function, or DIF. The IRS evaluates tax returns based on IRS formulas, and DIF is based on deductions, credits and exemptions with norms for taxpayers in each of the income brackets.
How do your deductions compare? (PDF) The actual scoring formula to determine which tax returns are most likely to be in error is a closely guarded secret. It is no mystery the system is designed to screen for returns that could put more money in the government Treasury.
Don't cheat yourself
But don't let fear of a potential audit discourage you from filing for tax credits or taking legitimate tax deductions. Read the audit tips list. (PDF) Do you have audit concerns? Contact us with your questions.
— Article by Kay Bell, contributing tax editor for Bankrate.com.
Email us if you have audit questions.
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