Re: Tax Audits....
Been several years but the one audit I personally participated in was pretty simple. They sent me a letter and said "Hey, we think this specific item needs to be reviewed", would you please come see us at xx time on xx date and bring all your records regarding the subject item. Responded and attended, he (single agent) asked for "this" I produced "this" then he wanted "that" and I produced "that". He wanted to discuss it for a few minutes and then said my records looked fine -- gave me a "no change to filed tax return" letter and I was on my way.
You need to bring your records for the SPECIFIC item(s) they ask for. DO NOT volunteer information beyond what you are ASKED for during the "interview". If you do that you will risk opening up another area for them to look into. If, at the conclusion, they say "no problem" be sure to ask for the "no change" letter for your records. Of course if they assess additional taxes you will be hit for interest too -- and they usually are about 18 months behind on the date so the interest will be for a pretty long period (maybe 2 years worth). DO NOT ignore any letter you get -- you will not win that argument. Also do not get too up tight about an audit. They are stressful but usually are no big deal if you did the return correctly or if the error committed can be chalked up to ignorance; this is no time to get argumentative.
Vietnam Veteran, CW4 USA, Retired 1979