Why is the IRS Examining My Taxes?

Your return may be examined for a variety of reasons, and the examination may take place in any one of several ways. After the examination, if any changes to your tax are proposed, you can either agree with those changes and pay any additional tax you may owe, or you can disagree with the changes and appeal the decision.

Examination selection criteria.
Your return may be selected for examination on the basis of computer scoring. A computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been processed. If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability.

Your return may also be selected for examination on the basis of information received from third-party documentation, such as Forms 1099 and W-2, that does not match the information reported on your return. Or, your return may be selected to address both the questionable treatment of an item and to study the behavior of similar taxpayers (a market segment) in handling a tax issue.

In addition, your return may be selected as a result of information received from other sources on potential noncompliance with the tax laws or inaccurate filing. This information can come from a number of sources, including newspapers, public records, and individuals. The information is evaluated for reliability and accuracy before it can be used as the basis of an examination or investigation.

Notice of IRS contact of third parties. The IRS must give you reasonable notice before contacting other persons about your tax matters. You must be given reasonable notice in advance that, in examining or collecting your tax liability, the IRS may contact third parties such as your neighbors, banks, employers, or employees. The IRS must give you notice of specific contacts by providing you with a record of persons contacted on both a periodic basis upon your request.

This provision does not apply:

To any pending criminal investigation,
When providing notice would jeopardize collection of any tax liability,
Where providing notice may result in reprisal against any person, or
When you authorized the contact

Taxpayer Advocate Service.
The Taxpayer Advocate Service is an independent organization within the IRS. Whose goal is to help taxpayers resolve problems with the IRS. If you have an ongoing issue with the IRS. If you have an ongoing issue with the IRS that has not been resolved through normal processes, or you have suffered, or about to suffer a significant hardship as a result of the administration of the tax laws, contact the Taxpayer Advocate Service.