USTaxPenaltySaverIRS Audit Risk Calculator DIF Score Estimator
Estimate your audit probability before filing. Based on IRS Data Book 2024 statistics and known red flag patterns.
$1M+ income: 8% audit rate |EITC: 1.5% audit rate |Average: 0.38%
IRS Audit Rates by Income (2024)
Source: IRS Data Book 2024, TRAC Reports. Higher income = higher audit probability.
| Income Bracket | Audit Rate | Risk Level |
|---|---|---|
| Under $25K (with EITC) | 1.50% | HIGH |
| $25K - $50K | 0.40% | LOW |
| $50K - $75K | 0.30% | LOW |
| $75K - $100K | 0.40% | LOW |
| $100K - $200K | 0.50% | MEDIUM |
| $200K - $500K | 1.00% | MEDIUM |
| $500K - $1M | 2.50% | HIGH |
| Over $1M | 8.00%+ | VERY HIGH |
Overall IRS audit rate: 0.38% (1 in 263 returns). Millionaires audited at 20x average rate.
IRS Audit Red Flags
These return characteristics increase your DIF score and audit probability.
Critical Risk Flags
- Crypto question mismatch (answered No with transactions)
- FBAR non-filing with foreign accounts
- Unreported 1099 income
High Risk Flags
- 3+ years Schedule C losses
- EITC with self-employment
- Home office >300 sq ft
- Non-cash donations >$5K
Medium Risk Flags
- Charitable donations >30% of AGI
- Rental losses claimed
- Cash-intensive business
- Foreign accounts reported
Low Risk Flags
- Round number deductions
- High mileage claims
- Large refund relative to income
How the Calculator Works
Enter Your Return Data
Input income, deductions, credits, and special items like Schedule C or home office.
Red Flag Analysis
We scan for 15+ known audit triggers and compare your expenses to industry benchmarks.
Get Recommendations
Receive your risk score, probability estimate, and actionable steps to reduce audit risk.
Industry Expense Benchmarks
The IRS uses NAICS industry codes to compare your Schedule C expenses against averages. Expense ratios 20%+ above your industry norm trigger scrutiny.
Restaurants
60-65%
High scrutiny (cash)
Trucking
75-85%
Fuel/mileage verification
Plumbing/HVAC
50-60%
Materials verification
Lawyers
35-45%
Professional services
Physicians
40-50%
Staff costs
Beauty Salons
40-50%
Cash tips scrutiny
Form 8275 Disclosure Strategy
When to Disclose
- +Position has reasonable basis but is aggressive
- +Expenses significantly above industry norms
- +Claiming non-standard deductions
- +Relying on tax court cases vs IRS position
Benefits of Disclosure
- 1.Eliminates accuracy penalties (IRC 6662) if position is reasonable
- 2.Demonstrates good faith to auditors
- 3.Starts statute of limitations (6 years from disclosure)
- 4.May prevent criminal referral in edge cases
What Our Calculator Analyzes
Income Sources
W-2, Schedule C, rentals, investments, crypto
Deduction Patterns
Schedule A, C expenses, home office, vehicle
Credit Claims
EITC, ACTC, education credits, energy credits
Industry Benchmarks
40+ NAICS codes with IRS expense ratios
Red Flag Detection
15+ audit triggers with severity scoring
Disclosure Advice
Form 8275/8275-R recommendations
Frequently Asked Questions
The Discriminant Function (DIF) score is a proprietary IRS algorithm that rates tax returns for audit potential. Higher scores indicate greater likelihood of detecting unreported income or improper deductions. The exact formula is secret, but it analyzes statistical norms, income sources, and deduction patterns. Returns with high DIF scores are flagged for review by IRS examiners who decide whether to proceed with an audit.
According to the IRS Data Book 2024, audit rates vary significantly by income: Under $25K (with EITC): 1.5%, $25K-$50K: 0.4%, $50K-$100K: 0.3-0.4%, $100K-$200K: 0.5%, $200K-$500K: 1.0%, $500K-$1M: 2.5%, Over $1M: 8%+. The overall audit rate is 0.38%, but millionaires are audited at 20x the average rate.
The Earned Income Tax Credit (EITC) has a 1.5% audit rate - nearly 5x the average - because of high error rates. The IRS estimates 25% of EITC claims have errors. Self-employment income near the EITC phase-out threshold is particularly scrutinized. Many EITC audits are "correspondence audits" handled by mail rather than in-person examinations.
Key Schedule C red flags include: (1) Consecutive years of losses (hobby loss rules trigger at 3+ years), (2) Expense ratios significantly higher than industry norms, (3) Home office deductions over 300 sq ft or claiming 100% business use, (4) Round number deductions, (5) Mileage deductions without logs, (6) Cash-intensive businesses with underreported income patterns.
Charitable donations are scrutinized when: (1) Non-cash donations exceed $5,000 (requires qualified appraisal), (2) Total donations exceed 30% of AGI, (3) Art or collectibles are donated without proper documentation, (4) Vehicle donations with inflated values, (5) Conservation easements (heavily scrutinized). The IRS has specific programs targeting abusive charitable deduction schemes.
Since 2019, the IRS requires all taxpayers to answer whether they received, sold, exchanged, or disposed of any virtual currency. Answering "No" when you had crypto transactions is a CRITICAL red flag that can lead to penalties for false statements. The IRS receives 1099 data from exchanges and cross-references this with your answer.
Form 8275 (Disclosure Statement) alerts the IRS to positions that may be aggressive but have reasonable basis. While it doesn't prevent audit selection, it: (1) Shows good faith, (2) May eliminate accuracy penalties under IRC 6662, (3) Starts the statute of limitations running. Form 8275-R is used for positions contrary to regulations. Filing disclosure can actually reduce penalty exposure if audited.
Cash-intensive businesses face higher scrutiny: restaurants, bars, car washes, laundromats, retail stores, and service businesses. The IRS compares your expense ratios to industry averages using NAICS codes. Reporting expenses 20%+ above your industry average is a significant red flag that may trigger examination.
Know Your Audit Risk Before Filing
Use our free calculator to identify red flags and reduce your audit probability. Based on IRS Data Book 2024.
Disclaimer: This calculator provides estimates only. The IRS uses proprietary DIF (Discriminant Function) algorithms that are not publicly available. Actual audit selection involves factors beyond this analysis. This is not tax advice. Consult a qualified tax professional for specific guidance on your tax situation.