Discriminant Index Function Law and Legal Definition

Discriminant Index Function is a computer program in which a return is graded by mathematical formulas. If the score allotted is high, then the chance for audit will be high. Some of the factors that increases the risk for audit include deductions or losses disproportionate to income, a higher income, high non-cash charitable contributions, large business meals and entertainment deductions or other business or un-reimbursed employee deductions, losses from a flow-through entity, such as a partnership, S corporation, or limited liability company, low income with large business deductions, large casualty losses, little or no profit from a business operation, hobby losses, and self-employment income or a low gross profit margin from self-employment income.