What is Required During an Audit?      

In an audit, the burden of proof rests solely on the taxpayer to prove that the information on the return is both true and correct. Audits routinely investigate reported amounts of income, exclusions, exemptions, deductions and credits claimed by taxpayers. The IRS website contains the following advisory for record keeping:

1. You should keep records for three years if you owe additional tax and situations (2), (3), and (4), below, do not apply to you.
2. You should keep records for six years if do not report income that you should report, and it is more than 25% of the gross income shown on your return.
3. You file a fraudulent return; keep records indefinitely.
4. You do not file a return; keep records indefinitely.
5. You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
6. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
7. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

For more information and additional information about documents connected with an asset, please see http://www.irs.gov/businesses/small/article/0,,id=98513,00.html 

Additionally, depending on the type of audit, it is advisable to keep records of bank statements, credit card statements, and other records substantiating earned income deposits and expenses. Copies of prior year’s tax returns should also be kept for the three year period, as well as years where any of the events above have occurred.