Legal Definitions - discriminant function

A discriminant function is a method used by the IRS to select tax returns for auditing. The process involves using a computer program to identify returns that have a high probability of errors, such as those with a disproportionate amount of deductible expenses. The selected returns are then manually reviewed by examiners to determine which ones should be audited.

For example, if a taxpayer claims a large amount of charitable donations that seem disproportionate to their income, the IRS's discriminant function may flag their return for further review. The examiners will then manually review the return to determine if the claimed deductions are legitimate or if there are errors that need to be corrected.

The discriminant function is an important tool for the IRS to ensure that taxpayers are accurately reporting their income and deductions. By targeting returns with a high probability of errors, the IRS can more efficiently use its resources to identify and correct errors in tax returns.