William J. Tarras, C.P.A., P.A..

William J. Tarras, C.P.A., P.A.


I.R.S. Examination Overview

Anyone who has received a letter whose sender is the Department of the Treasury, Internal Revenue Service understand the anxiety the receipt of such a letter engenders. If that letter informs you that your return has been selected for examination, your anxiety increases markedly. In this post I will try to assuage your anxiety by describing the major forms of examinations and how the examinations type are conducted.

Contrary to popular belief, examinations are not normally random events. That is, returns, with a few exceptions, are not selected randomly. The returns may be part of a project in which returns are selected because the items reported on a return meet certain selection criteria, such as reporting a tax shelter.

Returns may be selected for examination because the return’s Discriminant Function (DIF) score is above a certain level. The DIF score is a score that is computed based upon relationships within the return as well as individual items reported on the return. The computational process is a highly guarded secret and we can only make educated guesses on what may trigger an examination.

After a return is selected for examination, the return is sent to a person who looks at the return for potential issues. The issues determined to have examination potential are termed classified issues in the vernacular of the I.R.S. These issues are relayed with the return to the examiner. Depending on the type of examination, the examiner may or may not examine the classified issues. I have been a classifier. It is a tedious process that may not yield any results as it is based upon no input provided by the taxpayer. The issues identified by a classifier are best guesses, at best.