I Asked ChatGPT How the IRS Decides Which Tax Returns Get a Second Look
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Though the IRS is simply a government agency doing its job, many Americans have an anxious or even hostile relationship with it, often seeing it as an enemy. Getting a letter from the IRS asking for more information, or worse, announcing an audit, can immediately spike fear and stress.
In reality, there is very little that’s arbitrary about how the IRS operates. If your return gets extra scrutiny, it’s usually for a specific, explainable reason, and often relatively straightforward to resolve. To better understand what’s happening behind the scenes, I asked ChatGPT to help break down how the IRS decides which tax returns get a second look.
Most Returns Are Automatically Processed
When most taxpayers file their federal income tax return (Form 1040), the IRS processes it and issues a refund or balance due with minimal human involvement. Only a small fraction of returns are selected for additional review — often called an audit or examination — to verify that the reported tax is accurate and complies with federal tax laws.
After you file and your return is accepted, the IRS generally applies payments or sends refunds without a full manual review, ChatGPT explained. That doesn’t mean your return disappears into a void, though. Behind the scenes, it may still pass through several automated screening systems designed to flag potential issues.
Computer Screening and Scoring
Rather than randomly guessing or manually reviewing millions of returns, the IRS relies heavily on automated systems and algorithms to identify returns with a higher likelihood of errors or underreporting.
One of the best-known systems is the Discriminant Function (DIF) score. This scoring model compares the information on your return to statistical “norms” for taxpayers in similar situations. The goal is to estimate whether reviewing that return would likely result in a change to the tax owed.
For example, if a middle-income taxpayer reports unusually high deductions compared with others in a similar income range, the DIF system may flag the return as outside the norm.
The IRS uses additional automated tools that operate on similar principles, the AI noted, all aimed at prioritizing returns where discrepancies are more likely.
The IRS Systems That Review Dependent and Credit Claim
Another key system is the IRS Dependent Database (DDB), which focuses on claims tied to refundable tax credits. These include:
- Earned income tax credit (EITC)
- Premium tax credit (PTC)
- Child tax credit (CTC)
The DDB uses programmed rules to identify returns where eligibility requirements may not be met, helping the IRS focus compliance efforts where errors are more common.
The IRS Double-Checks With Third Parties
The IRS doesn’t rely solely on what you report, however. It cross-checks your return against information it receives from employers, banks and financial institutions, ChatGPT explained. W-2s and 1099s are sent directly to the IRS, and mismatches between those forms and your return can trigger a notice or further review.
That’s why it’s so important to enter income and withholding information directly from official tax forms, rather than relying on estimates, bank statements or accounting software.
In addition to automated scoring and matching, some returns are selected through random sampling for research purposes, or because they’re connected to another audited taxpayer, such as a business partner or investment entity.
It’s ideal if you’re in one of these situations to work with a certified public accountant or tax professional to help you understand potential issues and respond appropriately.
Common ‘Red Flags’ That Can Lead To a Second Look
While the IRS does not publish a definitive list of audit triggers, ChatGPT highlighted several factors that commonly increase scrutiny:
- Unreported or mismatched income
- Deductions that are unusually large compared with similar taxpayers
- Large refundable credits, such as the earned income tax credit or child tax credit
- Self-employment income showing repeated or significant losses
- Home-office or business vehicle deductions
- Foreign accounts or cryptocurrency activity
What It Means If You’re Selected
Receiving a notice from the IRS doesn’t automatically mean you’ve done something wrong. The initial purpose of an examination is simply to verify accuracy, ChatGPT explained.
IRS notices typically spell out:
- Why your return was selected
- What information is needed
- How and when to respond
Taxpayers have the right to provide documentation, challenge findings and seek professional representation if they disagree with the IRS’ conclusions. Also, the IRS does not call taxpayers to announce an audit — note that any such call is likely a scam.
The ‘IRS Second Look’ Isn’t a Mystery
Despite the fear surrounding audits, the IRS doesn’t randomly single people out. Instead, it relies on data-driven systems, information matching and risk analysis to narrow millions of returns down to a manageable number. Accuracy and good record keeping are your best defense.
For most taxpayers, filing carefully, reporting all income and keeping solid documentation is usually enough to ensure that any IRS “second look” stays brief or never happens at all.
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