The IRS uses complex computer algorithms to score every tax return. Here are the main flags that trigger an audit.
The Discriminant Function System (DIF)
This system assigns a score to your return. The higher the score, the more likely you are to be audited. It looks for deductions that are disproportionately high compared to your reported income.
Common Red Flags
- High Itemized Deductions: Claiming $30,000 in mortgage interest on a $40,000 income will trigger scrutiny.
- Schedule C Filers: Sole proprietors are audited far more frequently than corporations. Large losses, home office deductions, and excessive travel/entertainment expenses are key triggers.
- Non-Cash Charitable Contributions: Large donations of property require Form 8283 and, often, a qualified appraisal. Failing to attach these is an automatic flag.
- Unreported Income: The IRS receives copies of all W-2s and 1099s. If your return doesn't match these documents, you will receive a notice.