Tax returns are examined to verify the correctness of income, exemptions, credits or deductions reported on the return. A computer program called the Discriminant Function System (DIF) selects most of the returns that are examined. Selected entries on a return are evaluated and the return is given a score. Then the returns are screened by Internal Revenue Personnel. The returns that have the highest probability of error are selected for examination.

Returns may also be selected under the taxpayer compliance measurement program (TCMP). TCMP is a random selection system to determine the correct tax liability. The results of examination in this program are used to measure and evaluate tax payer compliance characteristics. Information obtained from TCMP is also used to update and improve DIF.

Other returns are selected by examining claims for credits or refund of previously paid taxes or matching information documents. (W2’s and 1099’s). An examination of return does not mean suspicion of dishonesty. It may not even result in more taxes. Some cases are closed without any change and in some cases taxpayers receive refunds.

Article extracted from this publication >>  February 15, 1985