Information Returns Factor Method Law and Legal Definition

Information returns factor method is a method whereby IRS selects the taxpayer's tax return for audit on the basis of the disagreement found in the W-2 or 1099 forms and the tax return filed by the taxpayer. Every year IRS receives copies of all W-2s and 1099s. From these documents IRS records the social security numbers. Later IRS will match them with the tax returns that are filed. If a taxpayer fails to report all of the income from their forms W-2 or 1099 on their tax return, the IRS will catch this disagreement.