The Internal Revenue Service recently announced its intention to perform special random checks of approximately 50,000 tax returns filed this year, purportedly to help the IRS better pinpoint taxpayers to target for future audits. Although this is a random selection and there's no way for a taxpayer to avoid it, an audit preparation file can help ease the burden if your return is selected for examination, says Jim Southward, EA, President of the California Society of Enrolled Agents.

Enrolled Agents are tax professionals licensed by the federal government to assist taxpayers with tax planning, preparation and representation.

"An audit preparation file is like insurance," Southward states. "You hope you never need it, but it's nice to know it's there."

It is a good idea, for example, to document all deductions. "Keep supporting documentation for questionable or unusually large amounts, such as unusual medical expenses or large charitable contributions," he advises. "Anticipate what an auditor might ask, and try to have the answers ready beforehand." Charities should supply a letter of acknowledgment for each gift of $250 or more, and those should be kept in the file as well.

Southward also encourages taxpayers to hold onto their tax records for five years, just to be safe. "The IRS has three years from the filing date to audit returns and the Franchise Tax Board has four years, so if you keep your records for five years you should be covered in case of an audit."

It's also a good idea to keep income records until checked against Social Security statements. "Periodically, all taxpayers receive statements from the Social Security Administration, and you'll want to check their records against your own," Southward says.

Of course, you should also not overlook the value of having a tax professional prepare or review your return. This will help when there is an IRS audit random.

"The Internal Revenue Code is currently more than 4,500 pages long," Southward points out, "and the IRS Regulations which interpret the tax code are more than 18,000 pages! Despite the length of these Regulations, there are still many situations in which it is unclear how the tax law should be applied. That's where a tax expert can help you pay the lowest required tax, to the satisfaction of both the taxpayer and the IRS."

Taxpayers in California who seek professional assistance with their tax situation can locate Enrolled Agents in their area by calling toll-free 800-829-7765 or online at http://www.csea.org. Outside California, the Enrolled Agent referral number is 800-424-4339.

Surviving an IRS Tax Audit - Surviving an IRS Audit, written by tax expert Fred Daily, explains what to say, what to do--and even what to wear--so that a visit from the auditor doesn't turn into a disaster. With material pulled directly from IRS training manuals, the book exposes the tricks of the auditor's trade.