How the IRS Decides Who Gets Audited — and How to Protect Yourself
The word “audit” can strike fear into any taxpayer, but the truth is, not everyone is at risk. The IRS uses specific methods to decide which tax returns to audit, and many audits are triggered by red flags, not random selection.
Paulette Fenton, MSA, EA
7/8/20252 min read
Understanding how the IRS chooses who gets audited (and taking steps to protect yourself) can give you peace of mind and help you file with confidence.
1. How the IRS Chooses Who to Audit
The IRS doesn’t have the resources to audit every taxpayer, so it focuses on returns that are more likely to have errors or potential underreporting. Here’s how the selection process works:
✅ Computer Scoring System (DIF Score)
The IRS uses a secret formula called the Discriminant Inventory Function (DIF) system to score every return. A high score means your return is “out of the ordinary” compared to similar taxpayers.
✅ Unreported Income Matching
The IRS cross-checks your reported income against information from employers, banks, and other financial institutions. If numbers don’t match (e.g., forgetting to include a 1099), your return may get flagged automatically.
✅ Related Party Audits
If someone you do business with is audited, your return might also get reviewed to ensure consistency
✅ Random Selection
A small percentage of audits are completely random as part of the IRS’s compliance research.
2. Common Audit Triggers
Certain patterns can raise red flags for the IRS:
Unreported or underreported income – even small amounts can trigger questions.
Large deductions relative to income – especially for charitable donations, business expenses, or home office deductions.
Excessive business losses year after year – the IRS may suspect a hobby rather than a legitimate business.
High-income earners – taxpayers making $200,000 or more are statistically more likely to be audited.
Cryptocurrency transactions – the IRS is increasing scrutiny of virtual currency income.
3. How to Protect Yourself from an Audit
While you can’t guarantee you’ll never be audited, you can lower your risk and be prepared if it happens:
✅ Report All Income
Include every W-2, 1099, and other income sources, even side gigs or cash-based work.
✅ Keep Detailed Records
Maintain receipts, invoices, mileage logs, and bank statements for at least three years (longer if you have complex returns).
✅ Be Reasonable with Deductions
Only claim deductions you can support with documentation. If it looks too good to be true, the IRS might take a closer look.
✅ File Accurately and On Time
Simple mistakes—like math errors or missing forms—can trigger additional IRS scrutiny.
✅ Consider Professional Help
Working with an experienced tax professional or Enrolled Agent can help ensure your return is accurate and defensible.
4. What to Do If You’re Audited
If you receive an audit notice, don’t panic. Many audits are resolved by simply providing requested documents. Here’s how to handle it:
Read the notice carefully to understand what the IRS is questioning.
Respond by the deadline—ignoring an audit can lead to additional penalties.
Provide only what’s requested; don’t volunteer extra information.
Get professional representation if you feel overwhelmed or unsure how to respond.