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This year Uncle Sam has a new tool to find underreported income – the Unreported Income Discriminant Index Formula (UIDIF). The IRS applies the formula to a tax return to estimate the probability that a taxpayer is hiding income.

Income earned by partnerships and S corporations must be reported on the personal income returns of their investors (Form 1040). It also must be accurately represented on the business entity’s informational tax filing. Until recently the IRS had no way to compare the two forms.

The agency is trying to identify suspicious tax practices so that it can follow up by auditing both the business entities’ and the owners’ and investors’ tax filings.

The number of fraudulent tax shelters and other tax schemes has surged in recent years. Many are brazenly advertised on the Internet, leading investors to believe that their financial structures are legal.

The IRS is cracking down on people who use credit cards issued by foreign banks to draw on unreported foreign bank accounts. It suspects that as many as two million people have unreported accounts.