The IRS selects returns for audit through a combination of computer scoring, document matching, and manual review. Most audits aren’t random. They’re triggered by specific patterns on your return that flag it as likely to contain errors or underreported income. Understanding what draws IRS attention can help you file accurately and know what to expect if you do get selected.
How the IRS Picks Returns to Examine
The primary tool is an automated system called the Discriminant Function System, or DIF. The IRS feeds every return through this scoring model, which was built by analyzing thousands of randomly sampled returns. Each return gets a numerical score based on how likely it is to produce a change in tax owed if examined. Returns with higher DIF scores are flagged for further review.
A high DIF score alone doesn’t guarantee an audit. Flagged returns go to human classifiers at IRS offices, who look at details the computer can’t evaluate, like attached documentation or the overall picture of a return. These classifiers decide whether the return actually has enough audit potential to be worth pursuing. Some returns are also selected for special research programs or pulled because they involve a simple, readily identifiable issue that can be resolved through a letter.
The other major selection method is automated document matching. Every W-2 your employer files and every 1099 a bank, brokerage, or client sends to you also goes to the IRS. When the numbers on those forms don’t match what you reported on your return, the IRS system flags the discrepancy automatically.
What Triggers an Audit
Certain patterns on a return consistently draw more scrutiny than others.
Missing or mismatched income. If a 1099 or W-2 reports income that doesn’t appear on your return, the IRS automated underreporter program catches it. This is one of the most common triggers because it requires no human judgment. The computer simply compares two numbers, and if yours is lower, you’ll hear about it.
High deductions relative to income. Claiming itemized deductions or business expenses that look disproportionate to what you earned raises your DIF score. For example, reporting $30,000 to $40,000 in losses on a Schedule C (used for sole proprietor business income) while earning $60,000 from a W-2 job is the kind of pattern the IRS flags. Large charitable deductions relative to income also attract attention.
Refundable tax credits. Credits that can generate a refund even when you owe no tax get extra scrutiny. The earned income tax credit (EITC) is a prime example. It has strict eligibility rules around earnings, relationship to dependents, and residency that are frequently applied incorrectly, which has led the IRS to watch EITC claims closely.
Self-employment income. Sole proprietors are up to five times more likely to be audited than wage earners at comparable income levels. The IRS knows that self-employed filers have more opportunity to underreport income or overstate deductions because there’s no employer reporting every dollar earned.
Audit Rates by Income Level
Your income bracket significantly affects your odds. Based on IRS Data Book figures, the overall audit rate for individual returns is about 0.40%. But that average obscures a wide range.
- Under $25,000: 0.4% audit rate, driven largely by EITC verification
- $25,000 to $200,000: 0.1% to 0.2%, the lowest audit rates
- $500,000 to $1 million: 0.6%
- $1 million to $5 million: 1.1%
- $5 million to $10 million: 3.1%
- Over $10 million: 4.0%
The pattern is clear: middle-income wage earners face very low odds. The highest earners and the lowest earners (because of refundable credit claims) see the most audit activity. Corporations are audited at a slightly higher overall rate of about 0.66%.
Types of IRS Audits
Not all audits involve an agent showing up at your door. The IRS conducts different levels of examination depending on the complexity of the issue.
Correspondence audits are the most common type. The IRS sends a letter asking you to verify or explain a specific item on your return, like a deduction or a credit you claimed. You respond by mailing back the requested documentation. These usually involve a single issue, take less time, and don’t require you to meet with anyone in person. A typical correspondence audit might ask you to substantiate a charitable donation or explain why your reported income doesn’t match a 1099 the IRS received.
Office audits are a step up. The IRS asks you to bring records to a local IRS office for an in-person review. These cover more ground than a correspondence audit but are still generally focused on a handful of specific line items.
Field audits are the most intensive. An IRS revenue agent visits your home or business to examine records in detail. Field audits typically involve complex returns, multiple issues, and detailed interviews. They can take weeks or months to complete and often require substantial preparation on your part. These are more common for business owners, high-income filers, and cases where the IRS suspects significant errors or fraud.
How You’ll Be Notified
The IRS always initiates an audit by mail. You’ll receive an official letter with a CP or LTR number printed in the corner, which identifies the type of notice. The letter will specify which return is being examined, which items the IRS wants to review, and what documentation you need to provide.
The IRS will never start an audit by phone call, email, or text message. If you receive a suspicious communication claiming to be from the IRS, you can verify it by calling 800-829-1040 or checking your IRS online account, where certain notices now appear digitally.
An audit notice will include a deadline for your response and instructions for how to proceed. For correspondence audits, you’ll typically have 30 days to gather and send your documents. For office or field audits, the letter will outline next steps for scheduling your appointment or the agent’s visit.
How Far Back the IRS Can Go
The IRS generally has three years from the date you filed a return to initiate an audit. This window extends to six years if the IRS believes you underreported your income by more than 25%. There is no time limit in cases of fraud or if you never filed a return at all. In practice, most audits focus on returns filed within the past two years.
What Happens During an Audit
The IRS examiner reviews your records to determine whether what you reported matches your actual financial activity. You’ll need to provide documentation supporting the items in question: receipts, bank statements, mileage logs, proof of charitable donations, or records showing business expenses were legitimate.
Once the examiner finishes, you’ll receive a report explaining any proposed changes to your return. If you agree, you sign the report and pay any additional tax owed (plus interest). If you disagree, you have the right to appeal within the IRS before the matter goes any further. You can also request mediation or take the dispute to U.S. Tax Court.
Many audits, especially correspondence audits, end with no change to the return or only a minor adjustment. Being selected doesn’t automatically mean you owe more money. It means the IRS wants verification, and providing clear documentation is often enough to resolve the issue.