How to prepare for a tax audit

It's no secret that the IRS is ramping up the number of audits in an attempt to close the "tax gap." That's the term the IRS is using to account for the difference between the taxes it believes it should have collected and what it actually managed to collect. For 2001 (the last year for which data is available), the tax gap was $345 billion.

Audits can be divided into two general categories: paper audits and people audits.