How to avoid an audit?
Most people want to avoid an audit by the IRS. Fortunately, because of a limited budget, the IRS can only afford to audit a small number of tax returns. Less than 1% of tax returns filed are audited even though the number of tax returns being audited is increasing.
How the IRS selects tax returns to audit
Knowing how tax returns are selected help taxpayers avoid an audit. While the IRS does not disclose all of the procedures used to select tax returns to audit, people have good ideas of how the IRS selects tax returns to audit based on the experience of who get audited.
The IRS utilizes mathematical formulas and statistical sampling techniques to select tax returns to audit. These tax returns are the ones most likely to contain errors and to yield substantial amounts of additional tax revenues when audited.
This mathematical formula is called the Discriminant Information Function or DIF score for short. Each tax return is given a DIF score and it is this DIF score that prompts the IRS to audit a tax return.
The IRS selects a cross section of tax returns which are subject to various degrees of inspection such as information return verification, correspondence and face to face IRS audits. Then whichever tax returns that are still not in compliance will be audited. See Who are most likely to get audited?