Maybe a scare tactic, but there is truth to them being a “red” flag. The IRS uses a method of computer scoring called the Discriminant Function System (DIF) score which rates the potential for change based on past IRS experience with similar returns. The Unreported Income DIF (UIDIF) score rates tax returns for the potential of unreported income. The highest-scoring returns are reviewed by IRS personnel and from there some are selected for audit with pointers to items on the return that need review.
When a tax return is filed, certain items reported on the return affect the DIF score. When the IRS says auto expenses are “red flags” for audit, they mean claiming auto expenses on the return increases the DIF score. The higher the DIF score, the closer to the top of the audit potential pile the return becomes.
And I would assume answering no to question 47a on Schedule C is also going to add a few points to the DIF score as well.
When a tax return is filed, certain items reported on the return affect the DIF score. When the IRS says auto expenses are “red flags” for audit, they mean claiming auto expenses on the return increases the DIF score. The higher the DIF score, the closer to the top of the audit potential pile the return becomes.
And I would assume answering no to question 47a on Schedule C is also going to add a few points to the DIF score as well.
Comment