Understanding the IRS DIF Score: What It Means for Your Taxes

IRS audits can be stressful. But have you ever wondered how the IRS decides who gets audited? Although it is sometimes random, the IRS generally uses a computer-generated score, called the IRS DIF score, before deciding whether to audit you. 

This score helps the IRS identify which tax returns may have errors or appear suspicious. However, understanding this score can help you avoid mistakes to ensure the safety of your tax return.

In this blog, you’ll learn:

• What the DIF score means and how it works
• How the IRS calculates it
• How you can keep your tax return within normal ranges

Let’s begin.

What is the IRS DIF Score?

This system compares your return with similar ones based on income, deductions, and other factors. The further your return strays from the norm, the higher your score.

The IRS risk assessment score from DIF doesn’t directly indicate you’ll be audited, but a high number increases the likelihood. It signals something on your return might need a second look.

Bonus Read → What to Expect During an IRS Audit and How to Prepare

How does the IRS DIF Score Works?

The IRS DIF score system uses statistical formulae and data models to identify tax returns that appear unusual. 

The system analyzes various elements and compares your tax return to what’s “normal” based on other individuals with similar jobs, income levels, your industry (via NAICS code), and deductions.

This is how the IRS uses the IRS risk assessment score to determine if your return is risky. Returns with the highest scores get flagged for manual review. These are the returns most likely to be audited.

The IRS also uses a separate Unreported-Income DIF (UIDIF) to flag mismatches between reported and withheld or third-party income.

Know More → How to Report a Loss on Personal Tax Return

Factors That Influence Your DIF Score

Several factors can push your IRS DIF score higher. Knowing these can help you avoid common traps:

• Unusual deductions: These are deductions that appear too large for your reported income. For instance, claiming $20,000 in work expenses on a $35,000 income could stand out and trigger an audit. The IRS looks for outliers that deviate from the norms in your income group.
• Math errors: Simple mistakes in addition, subtraction, or misplacing a decimal can raise red flags. These errors may lead the IRS to believe there are inaccuracies in your return, even if they’re unintentional.
• Big refund claims: Requesting an unusually high refund, especially without adequate documentation, may cause your return to be flagged. The IRS may suspect inflated deductions or underreported income.
• High charitable contributions: If your donations are much higher than what’s typical for your income level, they may attract scrutiny. For example, giving away 30% of your income to charity is generous, but it must be well-documented.
• Cash-based businesses: Restaurants, salons, and other cash-heavy businesses are more challenging for the IRS to verify. These industries are more prone to underreporting, so the IRS pays closer attention to such returns.
• Round numbers: Reporting expenses like $5,000 for travel, $10,000 for supplies, or $3,000 for meals may look suspicious. Real expenses are rarely exact round numbers, and using them too often can suggest estimation rather than actual tracking.

All these are considered IRS tax return red flags that can affect your score.

Understanding DIF Score Calculation

The DIF score calculation is complex and secretive, but we do know the basics. It relies on data from the Taxpayer Compliance Measurement Program (TCMP) and the later-launched National Research Program (NRP), which audited thousands of returns to build statistical norms

The IRS uses the TCMP to collect data from random audits. This data feeds into DIF to predict which returns are most likely to have errors.

Here’s what you must know about the elements used:

• Income
• Types and size of deductions
• Credit claims
• Filing status
• Past audit history

The goal is to spot patterns that often lead to tax changes during audits.

Read → Where to Check Federal Tax Return Status

How the IRS Uses the DIF Score for Audits?

The IRS audit selection process depends heavily on the IRS DIF score. When the IRS receives your tax return, it undergoes a machine review. This review uses the DIF score to identify which returns require additional attention.

However, the IRS audit selection process doesn’t rely solely on DIF. Here’s how it actually works:

1. Computer screening: Your return is entered into a system that assigns a DIF score.
2. High score selection: Returns with higher scores are flagged for further review.
3. Manual review: An IRS agent reviews flagged returns and decides if you face a correspondence, office, or field audit.
4. Audit decision: If deemed necessary, your return will be officially audited based on this decision.

This process combines automation with human judgment to ensure fairness and efficiency in how the IRS selects tax audits.

How to Reduce Your IRS DIF Score and Lower Audit Risk?

You can’t access your IRS DIF score, but you can influence it, sometimes in ways most taxpayers overlook. 

Let’s go beyond the basics and look at what truly makes a difference.

1. Report consistent income patterns: The IRS algorithms flag big shifts in income from year to year. If your income fluctuates, include a brief explanation using IRS Form 8275 (Disclosure Statement) to avoid suspicion.
2. Be cautious with Schedule C filings: If you’re self-employed, your business expenses are under extra scrutiny. The IRS compares your industry and region to national averages. Too many deductions or losses, especially over multiple years, signal higher risk.
3. Use IRS-friendly recordkeeping methods: The IRS trusts taxpayers more when your numbers align with e-filing systems, digital logs, or software-generated returns. For instance, using apps to track mileage or business meals adds credibility.
4. Avoid round numbers: Returns filled with neat figures, such as $1,000 or $500 often raise red flags. Real-life numbers are messy. Exact totals show you’re not making things up.
5. Back up unusual deductions proactively: If you’re claiming a rare or substantial deduction (like casualty loss or large charitable gifts of property), include Form 8283 or attach a detailed statement.
6. Time your filings strategically: Filing too early or late may affect your DIF score. Late filings can trigger added scrutiny, especially if payment is due. On-time and electronically filed returns score better.
7. Avoid repeat audit flags: If you’ve been audited before, the IRS watches your future filings more closely. Repeating the same patterns can compound your risk of being audited.
8. Collaborate with a proactive CPA: Hopkins CPA Firm can review your numbers from the IRS’ perspective with former IRS agents on the team, working tirelessly for 150+ years.

Read More → A Comprehensive Guide to Effective Tax Planning

Let Hopkins CPA Firm Fix Your Tax Risks!

The IRS DIF score plays a significant role in determining whether your return may be audited. But when it comes to audit protection and filing accuracy, Hopkins CPA Firm does more than just basic tax prep. 

• We thoroughly review your tax profile to identify potential issues before they arise. 
• We match every deduction to IRS expectations and cross-check it against real audit data. 
• Our team uses IRS-grade checks to identify risks that others may overlook. 
• We also offer detailed reviews for self-employed clients and business owners. 

We give you smart tax support that stands up under pressure. Contact us now and let Hopkins CPA Firm lower your audit risk today.