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Well the answer to that is pretty much everything. Once you’re under examination, the government has pretty broad latitude to investigate anything they think is relevant. If you don’t provide something, then the IRS agent has the authority to issue a summons for something. A summons is a demand that you produce records. So let’s say you didn’t want to produce your bank records. The IRS could summons you and command you to bring them down or the IRS could summons the third party like a bank and demand production of that document. If for some reason you still didn’t produce the records after the summons, then the IRS could get district counsel involved and they can go to court and enforce the summons order. So what will happen a lot of the times is people will make a serious error on their taxes, like they’ll leave off income and then they won’t want to provide the evidence to the IRS to kind of hide their tracks. But the problem with that is the IRS in a lot of cases can get the information anyway so if you don’t provide it to them and make it easy on them, they’ll do it by force, so just understand walking into this that the IRS has very broad authority to gather the information it needs to conduct an examination. The government has given the IRS very broad latitude when it comes to audits because they want them to be effective so realize that if you’re asked to produce a document, you’re probably going to be asked to turn it over.

The IRS selects returns for audit through a combination of computer scoring, automated document matching, and targeted enforcement programs — not by having agents manually review returns at random.

Most returns are never looked at by a human being. The selection process is largely algorithmic, and for most taxpayers, their only IRS contact will be a computer-generated notice, not an examiner. Understanding how selection actually works is useful both for making sense of a notice you’ve received and for knowing what genuinely raises your exposure.

How the IRS Calculates Your DIF Score

Every return filed with the IRS receives a DIF (Discriminant Function System) score — a statistical measure of how likely your return is to generate additional tax if examined.

The DIF algorithm compares your return to a statistical baseline built from TCMP (Taxpayer Compliance Measurement Program) audits — intensive line-by-line examinations conducted on randomly selected returns. The IRS used that data to establish norms for what deductions, income ratios, and expense patterns look like at each income level. A return that deviates significantly from those norms gets a higher DIF score.

The IRS does not publish the scoring formula. What’s known is that it’s driven by comparison to similarly-situated taxpayers: what a Schedule C sole proprietor with $250,000 in gross receipts typically looks like, what a W-2 employee at your income level typically claims. The further your return strays from that profile, the higher your score — and the more likely it is to land in a human reviewer’s queue.

How Automated Document Matching Works

Separate from DIF scoring, the IRS’s Automated Underreporter (AUR) program cross-references the income shown on your return against the 1099s, W-2s, and other information returns filed by third parties.

When there’s a mismatch — you reported $80,000 in freelance income but payers reported $95,000 to the IRS — the AUR program generates a CP2000 notice. This is not an audit. It’s a proposed adjustment based on the discrepancy. The IRS gives you 60 days to agree, disagree, or provide an explanation.

CP2000 notices are the most common IRS contact taxpayers receive. They’re also one of the most misunderstood — many people treat them like a final bill and pay immediately, even when the proposed adjustment is wrong or partially wrong. If you’ve received a CP2000, the proposed amount is not necessarily what you owe, and you have the right to dispute it.

IRS Targeted Enforcement Programs

Beyond the statistical selection process, the IRS announces specific enforcement priorities each year based on where it believes compliance problems are concentrated.

The current and recent priority areas include:

• High-income non-filers. The IRS has committed significant resources — backed by roughly $14 billion in new IRA enforcement funding — to identifying and pursuing taxpayers with incomes above $400,000 who have not filed returns. These cases often involve substantial assessments and may carry civil fraud penalties.
• Pass-through entity structures. Partnerships and S-corporations with complex or multi-layered structures have received increased attention. The IRS has deployed dedicated Large Partnership Compliance teams to examine these entities.
• Digital assets. Form 1099-DA went into effect for brokers beginning in 2025. The yes/no digital asset question has appeared on the front page of Form 1040 since 2019. The IRS treats unreported cryptocurrency transactions as a known compliance gap.
• Foreign financial accounts. FBAR (FinCEN Form 114) and FATCA (IRC § 6038D) disclosures remain a priority. FBAR penalties — up to $10,000 per non-willful violation per account per year — make this one of the higher-stakes areas of IRS enforcement for taxpayers with international ties.
• Research and development tax credits under IRC § 41. The IRS has identified abusive R&D credit claims as a significant compliance issue, particularly claims promoted by third parties on contingency. These are a Dirty Dozen list target and subject to heightened scrutiny.

Related-Party and Promoter Examinations

If someone you did business with gets audited, the IRS may audit you as part of the same examination.

This happens when a promoter is investigated, when a partnership or S-corporation is examined and the IRS pulls the returns of partners and shareholders, or when a contractor or vendor relationship surfaces during a field audit. You don’t need to have done anything wrong to be drawn into this kind of examination — your name appears on a return or transaction that the IRS is already looking at.

Related-party examinations can move faster than standard audits because the IRS agent is already familiar with the underlying transactions. If you learn that a business partner or promoter is under examination, it’s worth getting ahead of it rather than waiting for a notice.

Random Selection

A small percentage of returns are chosen for audit purely at random, with no audit trigger at all.

These random examinations are used for statistical sampling — the IRS needs updated compliance data to recalibrate the DIF algorithm and its enforcement priorities. If you’re selected randomly, the audit is not a signal that something is wrong with your return. That said, a random audit is still a legal proceeding and should be handled the same way as any other: with records organized, scope controlled, and ideally with representation.

What to Do If You Receive an Audit Notice

An audit notice is the beginning of a process, not a finding — and the type of audit matters a great deal for how you respond.

The three main audit types are: correspondence audits (conducted entirely by mail, typically for a single narrow issue); office audits (you or your representative meets with an IRS examiner at an IRS office); and field audits (an agent comes to your home or business — the most intensive format, typically reserved for complex returns or businesses). The scope of a field audit can expand significantly depending on what the agent finds, which is one reason representation matters.

As a general rule: don’t respond to an IRS audit notice without first understanding what’s being examined and why, and don’t meet with an IRS agent without representation. Statements made to examiners can be used to expand the audit into years and issues that weren’t originally at issue.

Frequently Asked Questions

How does the IRS select returns for audit?

The IRS uses three main mechanisms: DIF scoring (a statistical algorithm that compares your return to similarly-situated taxpayers), automated document matching through the Automated Underreporter program, and targeted enforcement programs aimed at specific income levels, industries, or transaction types. Most returns are never reviewed by a human. A small percentage are chosen randomly for statistical purposes.

What is a DIF score and how does it affect my audit risk?

The DIF (Discriminant Function System) score is a number the IRS assigns to every return, based on how much your deductions, income, and ratios deviate from statistical norms for your income level. Higher deviation means a higher score and greater likelihood of selection. The IRS doesn’t publish the formula, but the underlying driver is comparison to similarly-situated taxpayers — not the absolute size of any single deduction.

Is a CP2000 notice the same as an IRS audit?

No. A CP2000 is a proposed adjustment generated by the IRS’s Automated Underreporter program when your reported income doesn’t match information returns filed by third parties. It’s not a formal audit under the examination procedures. You have 60 days to respond, agree, or dispute it — and you should review the proposed adjustment carefully before paying, because the IRS’s proposed amount is often not what you actually owe.

What should I do when I receive an IRS audit notice?

Read it carefully to identify what type of audit it is, what year or years are at issue, and what the deadline is. Don’t respond without first organizing your records for the issues raised. In most cases, responding through a representative — rather than directly — limits what you say to the IRS and helps keep the audit scope from expanding beyond the original notice.

If your return has been selected for examination, our IRS audit defense page covers what to expect at each stage — or read our complete guide to IRS audits for a full breakdown of the process. If you’d like to talk through your specific situation, book a free 15-minute call.

We don’t know. So the IRS usually will start with one year if you get an audit notice and if there are multiple years, that’s an immediate red flag that there’s a serious issue. Generally speaking the IRS’s audit period has a three-year statute of limitations so the IRS generally doesn’t go back to more than three years when doing an audit. So if you actually went to the IRS and you talked to an auditor and you had them show their initial file when the IRS selects your return for audit, what happens is there’s a three year comparison of income and certain items that are on the return. So the IRS is generally looking for audits from a three-year perspective. Most audits will go three years. Now in the case that there’s a substantial underreporting of income, then the IRS will go back up to six years. If the government feels that the taxpayer has committed fraud then the IRS can technically go back indefinitely but it’s only in those cases that will they go back longer than the three-year period. If there is a substantial understatement then they will go back up to six but generally speaking they keep it within the three-year mark. So again what they usually do is they’ll start with a year, they’ll see if there’s errors in there because the government is not about creating more work for itself than it needs to, and then if they find errors in one year they’ll open up the entire audit period. If they find substantial underreporting of income then they’ll open up a six year period but that’s generally how long the government is going back when in audits tax returns.

So the first thing that we say to our clients is that you have the advantage in an audit. Number one, you’re the taxpayer and number two, you have access to all the documents so the government is put in a position where they’re asking you for records. You have the opportunity to control both the scope of the information that’s being provided and to control what information you provide so you’re controlling the scope and you get to edit out within that scope what actually gets provided. You have a lot of choice. What I tell our team is “you can’t control bad cards.” So for example if a tax return is unreported by $100,000 in income, you’re probably not going to be able to hide that but the advantage that you get in an audit is you can control the order in which the cards are being dealt. So the very first thing that we do in an audit is we like to know why the taxpayer has been audited. We look at the return and then we go through a pre audit, so we put the tax return through the same level of scrutiny. We’re actually using more scrutiny than what the IRS is going to put it through so we’re looking for issues that could come up. We’re determining whether things are a big deal, a little deal or not a deal at all and so we’re actively looking at those issues and we’re pre-screening things. Once we pre-screen things, then we develop an audit strategy and this has nothing to do with the IRS. This has to do with how are we going to present

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