One way is through the use of a very closely guarded computer program called
the Discriminant Function System or DIF. Over the years the IRS has associated
certain risk factors with certain items that appear in an individual or
company tax return. They’ve got a very sophisticated algorithm that
they plug all these stuff into and if your score comes up in a certain
range or whatever, then you’re much more likely to get audited.
The IRS also gets documents from a lot of third parties; for example, an
employee will get a W-2 from their employer and an investor will get a
1099 from their broker, bank or whatever. Copies are sent to the IRS.
If the numbers on your tax return don’t match those on the third
party documents they receive, you’ll either get a letter saying,
“Hey, there’s a mismatch,” or you might even get an
audit and they’ll say, “Okay, well, we’re going to audit
you to see what’s going on.”
Also, someone might call the IRS and say, “Look, I think Joe down
the block has some income he’s not reporting.” That kind of
stuff happens and the IRS will check it out if they think it’s worth it.
What Are Third Party Contacts and How Do They Apply To IRS Audits?
Sometimes as part of the audit process the IRS might want to talk to third
parties such as your employer or some of your customers. The IRS has to
notify you before they do this and you have to be given an opportunity
Are There Any Parties That May Legally Refuse To Provide Information To
The IRS Such As A Wife or a Family Member?
Generally not! There are certain privileges like the attorney-client privilege,
and communications between spouses can be privileged; anything that may
protect you in a court of law could conceivably also protect you in that
type of situation, but for the most part, if they go to your boss or your
bank, you will not be protected at all. Privacy generally won’t work.
For example, the IRS frequently wants to examine a taxpayer’s bank
statements. If the taxpayer refuses to provide them the IRS will typically
issue a summons to the bank. The taxpayer is notified that a summons has
been issued and has the opportunity to object in federal court.
For more information on
How The IRS Chooses Who To Audit, please call
(510) 444-4430 today to schedule a free initial consultation. Get the information and
legal answers you’re seeking.