IRS tax notices and audit selection processes explained

Taxpayers may receive notices from the Internal Revenue Service (IRS) that do not necessarily indicate errors or audits. Many notices are generated automatically by computer systems, sometimes before payments are fully processed or before correspondence has been reviewed. For instance, balance-due notices may be issued even after a taxpayer has submitted payment due to internal processing delays.

Regarding audits, the IRS utilizes several methods to select tax returns for review. These include computer scoring via the Discriminant Function System (DIF), which rates the potential for changes to a return, random statistical selection, and related examinations where a transaction involving one taxpayer triggers a review of another, such as business partners or investors. In fiscal year 2025, the IRS closed nearly 500,000 audits and recommended $26.8 billion in additional tax.