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Inquiring minds always want to know, why are tax returns selected for a IRS Tax Audit?. When I worked for the IRS I was asked that question almost every day. While there are many types of selection methods I will let you know a couple of the most common methods. These two methods probably account for 90% of all tax audits conducted by the Internal Revenue Service.
The most common methods of selection:
The Computer Scoring Method
Some tax returns are selected for a tax examination on the basis of computer scoring. The IRS Computer programs give each tax return  a numeric “score”. The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns. This information is saved from year to year and is programed to adjust to national changes. This by far is the most method of tax audit selection.
The Unreported Income DIF (UIDIF)
(UIDIF) score rates the return for the potential of unreported income. IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.
An example of this is pulling tax returns within a certain zip code because the standard of living requires higher income levels and those are not found on the tax return. IRS could pull that return.
Large Corporations — The IRS examines many large corporate returns annually. Generally, 6% of all corporations find tax audits.
Information Matching — Some tax  returns are examined because payer reports, such as Forms W-2 from employers or Form 1099 interest statements from banks, do not match the income reported on the tax return.   1.4 million tax returns are audited by this method. This is simply known as the matching program.

Related Examinations — Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for examination.
If a corporation was audited and adjustments were made, IRS picks up the associated 1040’s of the partners.
Other Reasons — Area offices may identify returns for examination in connection with local compliance projects. These projects require higher level management approval and deal with areas such as local compliance initiatives, return preparers or specific market segments.
If the area you live in has a particular industry, IRS may develop a market specialization program just for that industry. They have trained IRS Agents that only deal with that industry.
IRS is always coming up with new ways to keep up with the taxpayer. If you are pulled for an IRS Audit, you will always save money when you hire a former IRS Agent for your representation.