ace$spade:
It was not my intention to worry anyone. I was just passing along information I thought might be useful to all of you. In reality a very small percentage of returns are examined every year. Just make sure you keep proper records and you will be fine even if you are selected.
IRS audits can range from letter or mail audits where you will receive a letter asking for proof of something to an in depth look at your return. You have the right to be represented by a professional and as such may never actually meet an IRS representative. You can also request the the examination take place at the office of your tax professional or the local IRS office and not your home or your place of business.
We, CPA’s, never want our clients to meet the IRS. Most clients are very nervous when the meet with the IRS and volunteer to much information. They are also most often not aware of when the IRS does not have the right to know something. Therefore they never say no. One seminar I went to ever suggested that revenue officers had been trained to use long periods of silence in taxpayer interviews as a way to keep them talking in order to get more information out of taxpayers.
If you receive a notice that one of your returns has been selected for examination, the first thing I would do is to contact a tax pro in your area. You can probably ask your friends and/or co-workers and find a good one. If one of my returns was selected for examination and the audit could not be resolved by simply providing proof, I would ask one of my fellow CPA friends to represent me.