What Triggers an IRS Audit: 15 Red Flags | Neil Jesani Tax Resolution

What Triggers an IRS Audit: 15 Red Flags That Put You at RiskThe IRS does not audit returns at random. Every year, the agency selects returns through a combination of automated statistical scoring, information return matching, and targeted enforcement initiatives — and certain patterns put your return at dramatically elevated risk. The primary selection tool is the Discriminant Information Function (DIF) system, a scoring model that compares your return against statistical norms for taxpayers with similar income and filing characteristics. Returns with high DIF scores are flagged for human review by IRS classifiers, who then decide whether to open an examination. For high-income taxpayers, business owners, and anyone with complex financial arrangements, understanding what the IRS is looking for is the first step in defensible return preparation. In this guide, we walk through the 15 most common and consequential audit triggers — and what to do if the IRS comes knocking. IRS audit defense Key Takeaways The IRS uses the DIF scoring system to flag statistically unusual returns — high scores trigger human review. High income is the single strongest audit predictor: audit rates above $1M in income are roughly 5x the national average. Business owners face elevated risk from Schedule C losses, unreported cash income, and high expense ratios. Foreign accounts, cryptocurrency, and equity compensation are active IRS enforcement priorities. Professional representation from the moment you receive a notice prevents the most costly mistakes. How Does the IRS Select Returns for Audit? The IRS uses multiple selection methods, not just the DIF score: DIF (Discriminant Information Function): Automated statistical model scores every return. Items deviating significantly from norms for your income bracket and filing type trigger higher scores. UIDIF (Unreported Income DIF): A companion model that scores the likelihood of unreported income based on lifestyle indicators, cash-intensive industry, and return characteristics. 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