Here are some tips.
Computer Scoring – … Tax returns are “scored” using two systems – Discriminant Function System (DIF) and Unreported Income DIF (UIDIF). The Discriminant Information Function System (DIF) score gives the IRS an indication of the potential for change in tax due, based on past IRS experience. The Unreported Income DIF (UIDIF), as you can imagine, scores the return on the potential for unreported income. The higher the score, for either, the more likely the return will be reviewed.
Apparently these tips come from the IRS itself! When would it make sense for the IRS to teach us how to avoid an audit? It would make sense if the ways of cheating on your taxes were known and easy to describe. Then the IRS just announces it will audit anyone who does something that looks like that. But if there are always innovative ways to cheat on your taxes then an announcement like this, if truthful, probably only helps cheaters avoid audits.
On the other hand the IRS’s objective might be to maximize prosecutions. Then they want to lie about their audit policy and hope you believe them.
Cheap Talk 
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February 4, 2010 at 11:09 am
Scott
Ideally the IRS wouldn’t need any tax examiners, that all filers would follow all rules all the time. Obviously that doesn’t happen, but even the IRS has a finite resource pool and timeframe to draw upon, so it would want to reduce type I errors in selecting the auditing sample.
They also might work on a “bigger fish to fry” theory where even if you do cheat, running an audit may only yield $500 whereas going after someone else would yield $25,000. Actually, I think I’d want to see a histogram of auditing results.
February 4, 2010 at 11:22 am
William
Your post is predicated on the idea that these tips are informative. If I don’t know what the DIF or UIDIF scores are, how does knowledge that the IRS calculates them help me avoid audit? Of course, if I had data on tax returns and whether or not they were audited, I could try to see what characteristics of returns were likely to trigger an audit; but I don’t need to know what the IRS calls its internal algorithm to do this, and nor does it help that I do know the names.
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