The Internal Revenue Service (IRS) has developed a “secret” set of “normal” parameters for taxpayers in different categories. If too many of the parameters they monitor fall outside of the “normal” parameters for a given tax payer then that taxpayer is more likely to get audited.
This is best shown with an example:
Lets say the IRS groups people who are married and file joint tax returns together. Lets say they group those who report gross incomes of $50,000 - $70,000 into one category. Lets further say that the IRS has determined that it is “normal” for those taxpayers to have $11,000 - $17,000 in itemized deductions. If a married taxpayer in this income range has $19,000 in itemized deductions than the IRS would consider this parameter outside of the “normal” range and this item would be counted by the S as being outside of the “normal” range. If a taxpayer gets enough items outside of the “normal” range than an IRS audit may be triggered.
This “secret” formula is handled by the IRS computer system and is checked automatically by the IRS computer system.
Mike Sylvester, CPA/ABV
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