What triggers an audit?

Answer 1

There are essentially two ways your return could be selected for examination. One is the infamous "Red Flags". These are not printed anywhere but when the tax returns have very high expenses without corresponding income that is a Red Flag. Tax returns claiming the Earned Income Tax Credit that show someone earning just enough Self Employment Income that allows the filer to get the maximum amount of EITC is a Red Flag. That sort of thing.

However, the MAJORITY of tax returns selected for examination are through the Differentiation process. All tax returns filed are compared against some "models" of returns on file on the Cray Supercomputers at the IRS Computing Centers. How "different" a return is from the model results in a "Differentation Score" commonly referred to as the Dif Score. A Dif Score above a secret number level qualifies a return to be eligible for examination. Then it's just a matter of "luck" whether the computer will select your return from amongst the millions of others eligible for examination.