The Compliance Center computers are programmed to select those returns with high DIF scores which reflect issues that could be easily resolved by mail. The computers select those returns which are appropriate for correspondence audits and each respective return is reviewed by either a Tax examiner or clerk. The returns are DIF screened and quality reviewed using technically proficient examination personnel who are experienced in DIF screening operations. Returns which have apparent examination issues other than those appropriate for correspondence audit are referred to the local Area Office. Some examples of the kinds of items which can be verified by correspondence are itemized deductions, such as interest, taxes, contributions, medical expenses, and simple miscellaneous deductions such as union dues and small tools. Issues other than itemized deductions may be examined if they are single matters which would not be appropriate for office audit or field examination.
When a taxpayer requests an installment agreement for larger tax liabilities or proposes an offer in compromise, the IRS applies allowable expense standards. Total allowable expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s and his or her family’s health and welfare and/or production of income. The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family needs to live and serve as the basis for granting installment agreements and offers in compromise.