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Old 11-09-2019, 02:13 PM   #19
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City: Fort Lauderdale
Country: USA
Join Date: Jan 2014
Posts: 17,489
Originally Posted by catalinajack View Post
BandB - your review of what IRS does is almost perfect. You sound as if you are, or were, an insider. I was. I will point out one inaccuracy. IRS does have a program of random audits (National Research Program) that is used to validate and update the computer program (DIF - Discriminant Function) it uses to select individual returns for examination. The NRP examinations are NEVER conducted by new agents for training. In fact, IRS endeavors to use only experienced agents because the results from those examinations will be used for many years until the next time the DIF program needs to be updated.

The actual calculation of the DIF score is closely guarded to prevent an incentive for impropriety. If a taxpayer’s DIF score indicates that there is a potential issue, the return is then reviewed by a revenue agent or tax compliance officer who then makes the decision on whether to refer the return to an audit office. Returns are then prioritized and assigned to auditors. Some returns may also be screened out at this point.
Thank you for the clarification. I'm sure the use of trainees has changed since my one encounter with one nearly 30 years ago.

One thing I found interesting from the data is how seldom S Corporations and Partnerships are audited as they are nontaxable returns, only 2/10 of 1%. I'm sure the theory is the personal return audit covers them. Of course I do suspect larger S Corporations run a higher risk than small ones. I know of S corporations with sales over $1 Billion and Assets that would put them in the 10% audit category if a C Corporation.

When I was in industry working for someone else, our corporate returns were audited at least 10-14 times between 1989 and 2012. My wife and I own S Corporations and their return has never been audited.

Interestingly in 2018, there were math errors found on 2.5 million 2017 returns and nearly .5 million 2016 returns. Surprised me with all the computerized filing.

For anyone interested, here is the link to the IRS data book.
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