A taxpayer receives a 90-day letter Monday. The deficiency is $40,000 and she has no cash. She still has a path to a judge, because Tax Court is a pre-payment forum. Miss the 90-day window and that path closes; she pays first, then sues for a refund.
DIF scoring drives the largest share. The Discriminant Inventory Function (DIF) score ranks returns by statistical likelihood of error using formulas built from prior audit results. High DIF scores get human review. Other paths:
- Random selection through the National Research Program: a statistical sample to update DIF formulas.
- Related-party flow-through. A partnership audit pulls partners' returns; an S corp audit pulls shareholders.
- Document matching. A W-2/1099/K-1 mismatch triggers a CP2000 notice, the most common correspondence audit.
- Whistleblower tips under §7623 and abusive-shelter lists.
The IRS matches the audit type to the complexity and dollar size of the issue.
Correspondence audit. Conducted by mail. Narrow issues: missing W-2 income, an unsubstantiated deduction, a math error. About three-quarters of individual audits.
Common mistakes
- Confusing the 30-day and 90-day letters. 30-day letter triggers Appeals. 90-day letter triggers the Tax Court clock. A choice that says "petition Tax Court within 30 days" is the trap.
- Putting jury trial in the wrong court. Only District Court offers jury trial in tax cases. Tax Court has no jury. Court of Federal Claims has no jury. "Court of Federal Claims allows jury demand" is always wrong.
- Treating the 90-day window as flexible. The 90-day deadline is jurisdictional. Day 91 is too late, no equitable extension, no good-cause exception. The trap answer says "the court will excuse a 5-day delay for serious illness."
Bottom line
- Three audit types: correspondence (mail), office (IRS office visit), field (taxpayer location for complex returns); DIF scoring drives most selections
- Selection methods: DIF score (statistical anomaly), random, related-party flow-through, document matching
- Assessment statute: 3 years from filing or due date (later); 6 years if gross income omission exceeds 25%; unlimited for fraud or non-filing
- 30-day letter triggers Appeals Office conference; 90-day letter (statutory notice of deficiency) starts a jurisdictional 90-day clock to petition Tax Court
Exam shortcut
When the question gives you a 90-day letter, run two checks: (1) is the 90-day window still open, count days from the notice date, and (2) can the taxpayer pay the deficiency? Cannot pay = Tax Court only. Want a jury = District Court only. Federal Circuit precedent = Court of Federal Claims only. Remember: 30-day = Appeals, 90-day = Tax Court.
The full lesson (about 3,465 words, 23 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.C1
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