IRS audit

DIF score

The DIF score is the most widely used method for selecting tax returns for IRS tax audit. There are also other methods to select tax returns for IRS audit. Since DIF score is used often by the IRS raising IRS audit flags, we shall discuss how DIF score works to gain an understanding of the DIF score system.

What is a DIF score?

DIF score or the discriminate function system is the name the IRS calls the computer generated score the  IRS uses to select tax returns to undergo IRS audits. The majority of audited income tax returns are selected by means of DIF score.

How is DIF score generated?

The DIF scores are generated by IRS computers. DIF score is a statistical profile that is computed by comparing the tax numbers (income, expenses, and deductions) on income tax returns with numbers generated using national statistics for tax payers in a similar income tax bracket.

Computing DIF score

The real formula of how to compute DIF score is not revealed by the IRS. However, contributing factors to computing DIF score can be found on tax payers' tax returns.

An example of item on tax return used to compute DIF score is a loss on a sole proprietorship business (found on schedule C of the tax return). If these numbers or expenses are out of line with the numbers shown on DIF analysis, then the chances of an IRS audit increase. DIF score and DIF analysis is one of many factors the IRS uses to determine if an IRS audit is necessary.