First, don’t panic.
The majority of audits are done by mail, focusing on one or two items. The letter will ask you to mail in records and other information justifying the item they are questioning. Simply include copies of your documentation and mail back with a letter explaining your documentation.
If it is a field audit, you definitely want to hire a tax professional to represent you. I once was at the local IRS office representing a client when I overheard an IRS agent in the next office asking a taxpayer a series of questions. His answers to the agent made me cringe multiple times! He didn’t know the law and was just opening up even more areas for the IRS agent to question. He also volunteered information the IRS agent wasn’t asking for. Never, ever expand your answer! Stick to answering the question asked.
Next, make sure you are prepared. Organize your records. Don’t show-up with a bag full of receipts. Only provide documents for the items in question.
Finally, don’t automatically agree to any assessment from the local agent. I have been involved in many cases where we won a contested item at the appeal level. Remember, the local agent’s job is to throw out deductions and increase your income in order to increase your taxes owed. The appeals officer’s job is to settle the case. They are much more likely to consider an argument or take alternative documentation that the local agent rejected.
My best piece of advice is to get help from a tax professional who has experience dealing with the IRS. This is one time where representing yourself can be a grave mistake.