Introduction
The IRS doesn’t publish a public “audit score” formula, but it does use a mix of statistical models and information‑matching systems to prioritize returns for review. These systems estimate the probability that a return contains errors or underreported tax; returns with higher estimated risk are more likely to be selected for correspondence or field audits. This article explains the main tools the IRS uses, common triggers that drive higher scores, what taxpayers can do to reduce selection risk, and what to expect if the agency comes calling. Sources include IRS guidance and audit practice materials (IRS, Audit Techniques Guides; Publication 556) and my 15 years advising clients through IRS examinations.
How the IRS selects returns: the big pieces
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Discriminant Function System (DIF): For decades the DIF has been the centerpiece for analyzing individual and business returns. DIF assigns a score after comparing a return’s line items and ratios against patterns associated with known noncompliance. The exact algorithm is confidential and periodically updated by IRS statisticians.
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Automated Underreporter (AUR) / Information Return Matching: The IRS receives millions of third‑party information returns (W‑2s, 1099s, 1098s). Automated matching compares what third parties reported to the IRS with what you reported on your tax return. Mismatches typically generate letters or raise the return’s risk profile (IRS AUR program).
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Compliance Data Stores and Case Prioritization: The IRS maintains large compliance databases (historically called the Compliance Data Store or Data Warehouse) that let analysts run research samples and feed models used for return selection. Programs such as the National Research Program (NRP) help the IRS estimate nationwide compliance rates and refine scoring models.
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Issue‑specific scoring and specialist selection: Some cases are selected because they match patterns related to specific issues — e.g., large pension distributions, aggressive charitable deduction patterns, or unusually large S‑corp shareholder compensation variances. The IRS also uses industry norms and sector‑specific indicators from Audit Techniques Guides when choosing returns for industry‑targeted campaigns (IRS Audit Techniques Guides).
What the score looks for: common risk drivers
While the actual score is a proprietary composite, the variables that commonly push a score higher are well known in practice:
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Mismatched or missing third‑party income (W‑2, 1099): The AUR program flags returns where income on your return does not match third‑party filings. Failing to report such income is a top audit trigger.
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Deductions that exceed industry or peer norms: Large business deductions, high vehicle or meal deductions, or unusually large charitable gifts relative to income are compared to statistical norms.
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Sudden year‑over‑year changes: Large swings in income, expenses, or business losses compared with prior years attract attention.
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High income: Returns with very high incomes draw more scrutiny because the potential tax misstatement is larger and reporting tends to be more complex.
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Self‑employment and cash businesses: Professions and business types that historically have underreported income (restaurants, personal services, rental short‑term activity) are often subject to greater selection pressure.
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Claims for refundable credits or large refunds: Aggressive Earned Income Tax Credit (EITC) claims or other refundable credits may increase selection probability.
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Transactions with related parties or complex pass‑through items: Related‑party deductions, basis issues, or large pass‑through K‑1 items can raise flags.
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Prior noncompliance or audit history: A history of examinations or unpaid liabilities can increase future scrutiny.
Why you can’t see your score
The IRS treats the models and scores as internal compliance tools. Taxpayers are not provided a numeric audit score or the detailed rules the models use. The agency will, however, notify a taxpayer if it opens an examination and will explain the issue(s) being examined (refer to Publication 556 for examination and appeals rights). That confidentiality is intended to prevent gaming of the system and preserve the usefulness of statistical selection methods.
Types of IRS reviews and how selection differs
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Correspondence examinations: Many matches or low‑complexity issues are handled via mail. These are usually the result of an automated mismatch (AUR) or a lower DIF score threshold.
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Office audits: The IRS may ask you to come into a local office for document review when questions are more than basic but don’t require a field visit.
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Field audits: Complex returns, large issues, or suspected fraud can lead to on‑site field audits. These arise from higher‑risk scores or manual referral from caseworkers.
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National campaigns: The IRS sometimes runs campaigns focused on a particular industry or issue (e.g., misclassification of workers, specific deductions, virtual currency reporting). A return can be selected because it fits the campaign profile.
Practical examples (realistic patterns, anonymized)
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Example 1: Independent contractor with unreported 1099‑NEC income. A client received a correspondence letter after a 1099‑NEC that the payer filed matched higher income than the client reported. The resolution required amending the return and paying tax and interest.
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Example 2: Newly profitable small business with large start‑up deductions. A tax return showing sudden high business losses followed by a profitable year with aggressive business expense ratios prompted an office audit to verify validity of certain deductions.
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Example 3: High charitable deductions with limited substantiation. A taxpayer with large noncash charitable deductions and weak records had the return selected for review; good substantiation avoided adjustments.
What to do to reduce selection risk (practical steps)
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Use accurate third‑party reporting: Ensure employers and payers have your correct SSN and legal name, and check Forms W‑2 and 1099 early. Fix payer errors promptly.
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Keep strong, contemporaneous records: For business expenses, mileage, charitable gifts, and noncash donations, keep receipts, logs, and appraisals when required. Well‑organized records both reduce selection risk and speed resolution if selected (see our guide on Best Practices for Recordkeeping to Survive an Audit).
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Avoid unusual spikes without explanation: If your income or deductions jump, add explanatory notes to your records and tax return preparer file so you can provide a clear narrative if questioned.
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Follow industry standards: Reasonable compensation for S‑corp owners, appropriate cost allocations for rental activities, and safe‑harbor rules for home office or mileage can reduce aggressive positions.
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Use quality tax software or a professional reviewer: Many tax programs highlight potential audit flags and let you compare certain ratios to industry norms. Professional review can catch items that would otherwise increase risk.
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Respond promptly to IRS notices: Many issues are resolved quickly by responding with documentation. Ignoring notices almost always raises costs and risk.
Recordkeeping checklist
- Income: W‑2, 1099s, bank statements reflecting deposits, K‑1s.
- Expenses: Invoices, receipts, canceled checks, credit‑card statements, mileage logs, receipts for charitable gifts and appraisal reports for high‑value noncash donations.
- Business support: Invoices to customers, contracts, payroll records, depreciation schedules.
Handling selection: how exams usually proceed
If selected, the IRS will send a notice explaining the reason and what documents it seeks. For correspondence audits, you generally mail documents back. For office or field audits, you’ll be asked to produce organized documentation. If the IRS proposes changes, you have appeal rights under Publication 556, and you can request a conference with an appeals officer in many cases.
Common misconceptions
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Myth: Only the wealthy get audited. Reality: Higher incomes have higher selection probability, but many audits are correspondence reviews of mismatches that affect middle‑income taxpayers.
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Myth: Filing an accurate return eliminates risk. Reality: Accurate filing reduces risk, but the IRS uses matching processes and statistical anomalies can still trigger selection.
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Myth: There’s a single universal score everyone can see. Reality: Scores are part of internal models and are not disclosed to taxpayers.
In my practice
I routinely advise clients to document the business purpose for large or unusual items on a return and to keep a contemporaneous audit packet: a one‑page summary plus supporting documents indexed by year and issue. That simple habit reduces audit stress and often resolves inquiries without adjustment.
Helpful resources and next steps
- IRS Audit Techniques Guides (industry‑specific selection guidance): https://www.irs.gov/businesses/small-businesses-self-employed/audits
- IRS Publication 556 (Examination of Returns, Appeal Rights, and Claims for Refund): https://www.irs.gov/pub/irs-pdf/p556.pdf
- For practical preparation, see our FinHelp posts: Best Practices for Recordkeeping to Survive an Audit and How the IRS Prioritizes Tax Cases: From Correspondence to Field Audits.
Professional disclaimer
This article is educational and does not constitute legal, tax, or financial advice. Rules and IRS systems change; consult a qualified tax professional for guidance about your specific situation.
Bottom line
The IRS audit risk score is a black‑box statistical assessment that blends third‑party data, historical patterns, industry norms, and targeted campaign rules. You won’t see the numeric score, but you can influence selection probability by reporting accurately, maintaining organized records, and using defensible, well‑documented tax positions. Acting early and documenting clearly is the most effective way to avoid or efficiently resolve IRS inquiries.
